What am I buying when I buy a General Liability Policy?
Your business’s risk and your liability as an owner are difficult to assess and even more difficult to prepare for. At Next Insurance, we realize that insurance feels intangible, as if you’re paying for something for which you may never see the benefit. This can especially be the case for General Liability policies. Getting insurance for your brand new iPhone may seem like a more worthy investment, knowing that you could very feasibly drop your phone and be on the hook for a $250 repair cost without insurance. When it comes to insuring your business, the value for your money may be a little less clear. Imagining your business on the receiving end of a hefty lawsuit feels much more far fetched than that iPhone hitting the pavement; however, the impact of a high-cost lawsuit would also be much more detrimental to your business than the cost of a new phone screen.
So what is General Liability? In insurance terms, General Liability (GL) policies provide businesses with coverage for damage caused to others as a result of their business operations. These potential damages can be described as bodily injury, property damage, finished products by the policyholder, and/or personal injury such as slander or defamation. So what does General Liability insurance mean for you and your business? In short, GL policies offer coverage for the catastrophic scenarios that we don’t like to think about. These are the cases that no one can anticipate, such as a photographer’s light stand falling over and severely injuring someone. The world we live can be unpredictable, and General Liability is what protects your business against unexpected and disastrous accidents.
Why is the likelihood of an incident / lawsuit not the only thing to consider?
When thinking about why a business owner might need GL coverage, it is important to consider two terms: frequency and severity. Frequency is how often an event happens, or how likely it is to happen. Severity refers to the level of impact of an event if it were to happen. We unconsciously make decisions based on our understanding of frequency and severity every day. For example, on a spring morning we have the choice to grab an umbrella before heading outside. Rain is a likely event in the spring, thus it has high frequency. Getting wet without an umbrella is by no means a disaster, meaning the severity of a rain shower is low. Your decision to bring an umbrella or not rests solely on your own comfort level with the risk of being caught in a spring storm.
In contrast, the choice not to buckle up while in a moving vehicle comes with a greater risk. Car accidents are lower frequency than spring rain showers, but they can be very high severity events. Most of us know that a seatbelt is important protection, and choosing to buckle up could prevent severe injury or even death if an accident were to occur.
As a business owner, you know that General Liability claims are low frequency. You may hold a general liability policy for many years without needing to file a claim, leading you to wonder about the value of continuing your coverage. Roughly one out of every 1600 policyholders files a claim over the course of a year. However, the severity of these claims is very high — they cost over $150,000 on average! While it can be difficult to justify investing money into protecting yourself from an event that may never happen, the price tag on a future claim far outweighs your monthly premium.
So do I really need General Liability?
Most of the businesses we work with purchase General Liability policies for two reasons – both are valid and very important.
The first is wanting to be in control, rather than be vulnerable. While purchasing a general liability insurance policy may seem like an unnecessary expense each month, these business owners don’t want to leave the livelihood of their business to chance – they know they may one day need to utilize the substantial funds a policy provides in the event of a claim.
The second is wanting to position their business for growth. Many of our customers find that business partners (venues a photographer is looking to do shoots at, gyms a personal trainer is looking to train in, projects an artisan contractor is looking to be part of) require Proof of Insurance as a condition for hiring them. Having General Liability protection in place therefore becomes a tool in your “growth” toolbox – one that can help business growth and signal your level of professionalism and accountability.
We passionately believe a General Liability policy is something a serious, ambitious business owner should not live without – it is one of the first types of insurance we recommend our customers invest in. It’s about control, protection, and arming yourself with tools needed for your business to thrive.
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