As a small business owner or independent worker, there are two essential types of insurance coverage for your work. General liability insurance covers claims of third-party liability, such as damage to a client’s property, while professional liability insurance covers errors or omissions in the professional services or advice you provide. Here’s what you should know about your business insurance options before selecting coverage.

What is general liability insurance?

Also referred to as “commercial general liability” (CGL) insurance or “business liability insurance,” general liability insurance coverage is an excellent first line of defense against having to pay out of pocket for third-party claims related to third-party bodily injury (not to employees), third-party property damage, and personal and advertising injury. You can also add third parties to your policy who could be sued because of your actions at work. These third parties — which can be individuals or businesses — are known as Additional Insureds and are often required as part of a contract for work.

What general liability insurance covers

General liability policies typically include three types of coverage: bodily injury, property damage, and personal and advertising injury (all to third parties):

  • Bodily injury: Bodily injury refers to harm caused to a client or a passerby. For example, if you leave a tool on the ground at a worksite, causing your client to trip and sprain their ankle, bodily injury liability insurance would cover their medical costs.
  • Property damage liability: Property damage liability covers you and your business if you break or damage someone else’s property in the course of providing them with your professional services. For example, if you stain a client’s antique rug while cleaning their house, property damage liability coverage would pay for the deep cleaning and restoration.
  • Personal and advertising injury: Personal and advertising injury coverage includes instances in which another business asserts that you damaged their reputation. For example, if they claim that your ads disparaged them as a competitor, your insurance carrier would arrange the claim investigation.

If general liability insurance alone doesn’t afford your business enough coverage, you may want to consider purchasing additional types of insurance.

Who should get general liability insurance?

Most business owners and independent contractors should consider general liability insurance, especially if they perform physical work in a certain location for customers or clients. For example, professionals like carpenters or photographers would need general liability insurance because they physically interact with others as a regular part of their job.

What is professional liability insurance?

Professional liability insurance can serve as a complement to your general liability insurance, depending on your coverage needs. Also known as “errors and omissions insurance,” professional liability insurance protects you against claims that your professional services or advice resulted in a client’s financial loss.

Professional liability insurance financially safeguards your business if a client alleges that the work you’ve done is unsatisfactory, incomplete, or was done improperly. However, if the work caused physical harm to your client or to their property, that claim would fall under general liability insurance.

Many businesses can benefit from adding professional liability insurance to their general liability insurance coverage. This is particularly true for those in the legal, engineering, and accounting space, although any professional services company could do well to buy such coverage.

What professional liability insurance covers

Professional liability insurance covers claims related to negligence where the client or customer is dissatisfied with a professional service your business provides. Coverages for professional liability insurance include:

  • Actual or alleged negligence: The insurer does the legwork in determining what happened when a customer claims that you were negligent in completing your work, such as missing a deadline or providing improper advice.
  • Defense of claims: The insurer defends you in legal proceedings related to claims that you didn’t meet the terms of your professional contract
  • False or frivolous claims: Along with helping to cover the costs of valid claims, a professional liability policy will defend you against claims that have no merit.

Who should get this policy?

A variety of different types of business owners and entrepreneurs should consider professional liability insurance. This type of insurance provides coverage for a wide variety of situations related to business operations. For example, a tutor who teaches an old version of a test could cause their student to get a bad grade, which might result in that student not getting into a better college. A professional liability insurance policy would protect the tutor against the cost of defending a negligence claim.

Similarly, a self-employed CPA might calculate a tax deduction incorrectly, creating a red flag with the IRS. Consequently, their client must spend time and money to file their taxes again correctly. In this case, a professional liability insurance policy would protect the CPA against a claim that they failed to provide contracted services.

General vs. professional liability insurance

General liability insurance and professional liability insurance each covers different kinds of common business risks, offering a baseline amount of financial protection in the event of a mishap that relates to your business. Both provide investigation and legal defense, pay damages on your behalf, and offer peace of mind for business owners.

In general, professional liability policies cover nonphysical risks like economic or financial losses suffered by third parties, while commercial general liability insurance covers physical risks like bodily injury or property damage.

The majority of professional liability coverages are only provided on a “claims-made” basis, which means that only claims reported while the policy is in effect are covered. Most are also offered on a defense within limits basis, which stipulates that the insurer’s payment of defense costs reduces the remaining policy limits available for an award or payout to the claimant. This is generally not the case with general liability insurance, where defense costs are usually paid in addition to policy limits.

At Thimble, we make it easy to secure the right general liability insurance and professional liability insurance coverage for your business. Policies are designed to work when you do: by the job, month, or more. Plus you can modify, pause, or cancel coverage at any time. Download our free app or click “Get a Quote,” and get covered in just a few minutes.