What is business liability insurance and what does it cover?

What is business liability insurance?

Business liability insurance protects your business from the financial fallout of claims due to injury, property damage, or reputational harm like libel or slander. If someone sues your business over an accident or harm they claim you caused, this insurance can help cover legal fees, settlements and medical bills.

Unlike commercial property insurance or workers’ compensation, which protects your assets and staff, business liability insurance covers claims from people outside your business. These third-party claims can come from customers, vendors, or the public.

Besides property damage and medical expenses, business liability insurance can also cover attorney fees, court costs and settlement payments.

Types of business liability insurance

There are several types of liability insurance that your business may need, even if not required by law. These include:

General liability insurance covers third-party claims of injury and property damage that in the course of doing business.
Professional liability insurance, also known as errors and omissions (E&O) insurance, covers customer lawsuits and legal judgments over accusations of unsatisfactory work. In the medical field, this coverage is known as medical malpractice insurance.
Directors and officers liability insurance, often called D&O, covers the costs of defending your company and its key executives if the business is sued by a customer, creditor, vendor, employee or other stakeholder for actions the executives take.
Commercial umbrella insurance provides extra liability protection beyond the limits of your other commercial insurance policies, such as general liability and commercial auto insurance.

How does business liability insurance work?

Business liability insurance coverage steps in when someone sues your company over injury, property damage, or legal disputes. For example, if a client claims your work damaged their property, liability insurance helps cover legal fees, medical expenses and settlements.

You pay a monthly or yearly premium to keep the policy active. When a lawsuit or accident happens, you notify your insurer, who will guide you through the claims process. Most policies also have a deductible, the amount you pay before insurance coverage kicks in.

What does business liability insurance cover?

Business liability insurance covers various risks that can come up during the course of daily operations in a small business. Here are a few of the most common things it covers:

Bodily injury if a customer or third party gets injured because of your business.
Property damage that you or an employee cause to someone else’s property or belongings.
Advertising injury claims of libel, slander, or copyright infringement.

Besides property damage and medical expenses, it can also cover attorney fees, court costs and settlement payments.

What isn't covered by business liability insurance?

Business liability insurance coverage protects your company in many ways, but it doesn’t cover every risk you’ll face as a small business owner. Knowing where this coverage stops can help avoid surprises:

Employee injuries or illnesses that happen on the job.
Damage to your own business property, like your building or equipment.
Intentional acts you or your employees do, like vandalism or fraud.
Automobile accidents while driving for business purposes.

How much does business liability insurance cost?

The cost of business liability insurance depends on the industry, business size, your business’ risk and other factors. Higher-risk businesses, like manufacturers, pay more for coverage — around $3 per $1,000 in sales, while lower-risk businesses might pay closer to $1.50, according to the National Association of Insurance Commissioners, a group of top insurance regulators from all 50 states.

General liability insurance costs

Insureon, a brokerage specializing in small business insurance policies, offers the following monthly cost estimates for general liability insurance, the most common form of business liability coverage, for the following industries:

General liability insurance costs by business type
Business types	Monthly premiums
Professional services	$29
IT/Technology	$30
Real estate	$32
Personal care	$32
Building design	$35
Retail	$42
Food/beverage	$42
Cleaning services	$46
Manufacturing	$46
Installation professional	$67
Construction and contracting	$80

Professional liability insurance costs

Professional liability insurance can be slightly more expensive than general liability, but in both cases premiums will vary based on the type of business you have. Insureon offers the following monthly estimates:

Professional liability insurance costs by business type
Business types	Monthly premiums
Healthcare	$40
Professional services	$42
Personal care	$47
Therapy and counseling	$56
Real estate	$57
IT/Technology	$67
Media and advertising	$72
Building design	$142

These prices are merely estimates. Talk to your insurance agent or broker for a detailed quote on a policy that meets your business needs.

Business liability insurance benefits

Business liability insurance is one of the wisest investments you can make for your small business.

One lawsuit can undo years of effort, and small businesses are especially vulnerable. Despite only generating 20% of commercial revenues, small businesses bear 48% of commercial tort expenses — adding up to $160 billion in 2021, according to the U.S. Chamber of Commerce Institute for Legal Reform.

Liability insurance helps ensure a single claim doesn’t drain your business resources. It helps your company stay financially stable when unexpected claims arise. Plus, having coverage builds credibility with clients and partners, as many contracts require proof of insurance.

People ask: Do I need business liability insurance if I have an LLC?

Business liability insurance isn’t typically required by law, but certain industries, states, or contracts may require it. Even if it’s not mandatory, having this insurance is a smart way to safeguard your LLC from legal claims and accidents.

Who needs business liability insurance?

Every small business can benefit from business liability insurance. Risks always lurk in the background, whether you run a retail store, restaurant, consultancy or contracting business.

For example, if you have a storefront, you face risks from customer injuries or damaged property. Service providers, like consultants or contractors, could be sued for mistakes or giving inaccurate or faulty advice. Even home-based businesses aren’t exempt — clients visiting your home or a defective product you sell could lead to costly claims.

In short, any business that deals with the public or provides products or services should consider business liability insurance.

Which insurance companies offer business liability insurance?

Sifting through the various business liability insurance companies can feel overwhelming for small business owners. Here are some options:

AIG
Allstate
Chubb
The Hartford
Progressive
Nationwide
State Farm
Travelers

How to get business liability insurance

With a little preplanning, getting business liability insurance is an easy process. Here’s how to get started:

Assess your risks and coverage needs. Consider the type of work you do, potential liabilities, and how much protection your business requires.
Gather key business details. Have up-to-date information about your sales, payroll, and operations ready to provide to insurers.
Request quotes. Reach out to insurance providers directly or work with an independent agent who can compare multiple options for you.
Review and compare policies. Look closely at coverage limits, exclusions, and costs to find the best fit.
Choose and purchase a policy. Select the policy that matches your budget and coverage requirements to protect your business.

Tips to lower the cost of business liability insurance

You can lower your business liability insurance premiums with a few effective strategies:

Invest in training and better equipment to improve safety and reduce claims.
Bundle your policies to combine liability insurance with other coverages, like property or commercial auto, to get a discount.
Adjust your coverage as your business evolves to avoid paying for more than you need.
Keep a clean claims history to lower your rates over time.
Choose a higher deductible to reduce your monthly premium.

What our expert says

Q: How important is business liability insurance

Ashely Jantovsky A licensed insurance agent and founder of Perfect Price Insurance Agency

"It’s the first line of defense, protecting everything you’ve worked so hard to grow and achieve. A small business could be one lawsuit away from filing for bankruptcy."

Frequently asked questions

How do I determine how much liability coverage my business needs?

To figure out how much business liability insurance you need, consider your industry, business size and potential risks. Think about how much a lawsuit or claim could cost, including legal fees, medical bills, or damages.

It’s also helpful to check any contractual requirements or industry standards. A good rule of thumb is to choose enough coverage to fully protect your business’s assets in case of a worst-case scenario.

Does business liability insurance cover employee injuries?

No, business liability insurance doesn’t cover employee injuries. You’ll need workers’ compensation insurance to protect your staff. Liability insurance only covers claims from third parties, like customers or vendors, who are not part of your business.