There's no question that any business requires insurance to protect itself against legal liability. State laws also typically mandate commercial insurance, although specific requirements vary by state and industry. However, even without state regulations requiring your business to carry insurance, it's rarely wise to go without it.
Still, liability insurance can often be a confusing space for new business owners. Which types of insurance do you need? How do they differ? How much coverage do you need? These are complex questions, but answering them begins with understanding how the three main types of commercial liability insurance differ from one another.
1. Commercial General Liability (CGL) Insurance
Commercial general liability (CGL) insurance is the broadest type of liability coverage available to most businesses and the type of liability insurance most likely required by state law. CGL coverage is broad, often much more so than business owners realize. This insurance typically covers damages that occur on your business premises, elsewhere while conducting business operations, or even due to your products.
In other words, your CGL policy protects you against most forms of accidental damage, with a few notable exceptions. For instance, CGL will not cover you or your employees for damage caused by vehicles and generally will not cover routine risks. Likewise, you'll need separate coverage for most employment-related issues.
2. Commercial Auto Liability Insurance
Commercial auto liability insurance is relatively easy to understand since it's directly analogous to personal auto liability insurance. This coverage protects you from legal liabilities if you or your employees cause injury or property damage while operating a vehicle and conducting business. CGL insurance explicitly does not cover automotive damage.
While automotive liability coverage is important for businesses that own vehicles or operate fleets, other use cases exist. Even if you are your only employee and use your personal vehicle, you will still require commercial auto liability insurance if you use your vehicle for business. Most personal coverage policies will not cover any business use cases.
3. Professional Liability Insurance
CGL coverage protects you against claims of personal injury or property damage, but these aren't the only claims that customers or clients may file against your business. Your clients may claim financial or reputation damage if you provide a professional service. Professional liability insurance, also known as errors and omissions (E&O), protects you against these claims.
Not all businesses require E&O insurance, but most companies that provide professional or "white-collar" services can benefit from this policy. Remember that not all claims have merit, but defending yourself against frivolous claims can still be expensive. This policy helps protect you from both legitimate claims and malicious suits.
Reach out to a business liability insurance service to find out more.