When it comes to business insurance, the selection process can be quite perplexing, particularly when there are two plans that cover the same risks. General liability insurance and professional liability insurance are designed for distinct functions. Knowing the difference will help business owners safeguard themselves financially, professionally, and operationally. Generally, general liability insurance tends to cover bodily injuries, property damage, and specific personal and advertising injuries. At Feel Good Insurance, we help business owners understand which coverage fits their operations.
Understanding General Business Risks
Any business is exposed to risks, despite the fact that its day-to-day activities seem ordinary. Some customers might enter the office by mistake, or any employee might cause some damage to the property of the client. Thus, it becomes very typical for companies to purchase insurance that deals with typical third party claims.
General liability insurance typically pays attention to the particular claims of bodily injury, property damage, and personal or advertising injury. Nevertheless, the particular liability insurance policies that apply to general liability insurance are defined by the terms of the policy itself. The advantage here is obvious: without having the appropriate insurance, one might have to pay legal fees and other expenses himself/herself.
What General Liability Usually Addresses
General liability insurance pertains to risks related to regular business operations and dealings with others. For instance, an individual can be injured while being on the business premises. In another case, an individual employed by the business might unintentionally cause damage to a third party’s property while working.
Common liability insurance covers have include:
- Third party bodily injury claims.
- Claims of property damage to third party property.
- Some personal or advertising injury claims.
However, not all problems of a business are covered under general liability insurance. Some examples include professional negligence, injuries to employees, commercial vehicles, and intentional acts.
Understanding Professional Service Risks
There are businesses whose risk arises out of the very advice, expertise, and services offered. It may be that the client feels that the professional erred, omitted crucial information, or did not offer the promised service. The professional liability insurance is based on particular claims concerning professional services. Based on the particular insurance plan, it can be for issues such as negligence, errors, omission, and failure to fulfill professional duty.
This is quite different from a situation where a client slips in the office. The point here is that the risk lies in the quality or performance of the professional service.
General Liability vs. Professional Liability
The most straightforward approach to discerning the two is through the nature of the claim. General liability often covers physical injury, property damage, and personal or advertising injury exposures. On the other hand, professional liability insurance is geared towards the kind of financial exposure involving professional services. Some companies may have the need for both forms of insurance since they experience both physical and professional exposure. Thus, looking into the company’s operations would provide better insights than the industry classifications.
Why Some Businesses Need Both Policies
There may be a number of different types of claims at the same time that a business may have to deal with. For example, a business such as a consulting firm may have people coming into the office of the business, and on the other hand, the business provides consultation services. An injury to visitors and an error on the part of the business are two very different issues. Both of them give more coverage because the policies cover different kinds of exposures. However, there are limits and deductibles involved in each policy. Many business owners review their commercial insurance options to make sure both physical and professional risks are properly covered.
Other factors to be considered are:
- The services provided by the business to its clients.
- Whether clients visit business premises.
- Whether employees work at customers’ premises.
Real-World Examples of Coverage Differences
Take for example a marketing consultant with a number of clients. One of the clients comes to the consulting office and slips and falls as a result of a wet floor. This is an incident involving physical injuries and it can fall under general liability insurance.
There is another incident. The work provided by the consultant is said to have resulted in a big financial loss by the client. This is an incident involving professional services and not physical injury or property damage.
Common Mistakes When Comparing Policies
Business owners might think that with one liability policy, they can cover all risks associated with the business. One common error made by businesses is to base their choice of policy solely on cost. A cheap premium will look tempting; however, the scope of coverage or limitations can influence its value.
Another error made by businesses is failing to understand exclusions. All policies contain provisions that limit or exclude some circumstances. Hence, the policy wording should be reviewed carefully.
Businesses may also ignore the requirements of a contract. Sometimes some customers, landlords, banks, or associations have their own requirements for insurance.
Choosing Coverage With Greater Confidence
In order to choose the right insurance policy, one must first figure out how the business earns profits and what type of claim might come up. A contractor would need to consider issues related to property damage, whereas a consultant would need to consider issues related to services provided.
Both issues are faced by some businesses. The need for professional liability insurance arises where there is reliance on specialized knowledge or advice. General liability insurance would cover some injury to third parties and property damage cases.
Understanding the Difference Can Strengthen Business Planning
Making choices about insurance becomes simpler when business owners know what the risks associated with each type of insurance are. General liability and professional liability cover different exposures and therefore cannot replace each other. Whether one chooses general or professional liability depends on how his or her business operates. Analyzing the wording and limitations of the policies, as well as considering how the operations of the business evolve, might make risk management easier. When a business expands, its insurance requirements might also grow; thus, reviewing its insurance becomes an integral part of business planning.
FAQs
1. What is the main difference between general and professional liability?
General liability typically addresses certain third-party injury and property damage claims. Professional liability focuses on certain service-related errors and negligence claims.
2. Can a business need both types of liability insurance?
Yes. Some businesses face both physical third-party risks and professional service risks, making both types potentially relevant.
3. Does professional liability cover every professional mistake?
No. Coverage depends on the policy terms, exclusions, limits, definitions, and circumstances surrounding the claim.
4. Does general liability cover professional errors?
Generally, professional errors require different coverage. However, the exact response depends on the specific policy language and circumstances.
5. How should a business choose liability coverage?
Businesses can consider their services, operations, contracts, client risks, and potential claims while reviewing coverage with a licensed insurance professional.