About General Liability Insurance
All businesses, regardless of industry, face risks that should be covered by insurance. The most common and comprehensive type of policy business owners invest in is general liability insurance (or CGL).
Some of the risks CGL insurance covers are:
- Bodily injury
- Property damage
- Medical payments
- Legal defense and judgment
- Personal and advertising injury
While businesses aren’t legally required to carry general liability insurance, operating without it is extremely risky. If your business is sued, you could end up facing fees totaling hundreds of thousands of dollars (or more). Having a sufficient CGL policy in place to help compensate for these damages is the only way to prevent this type of event from devastating your business.
COMMON SITUATIONS THAT GENERAL LIABILITY INSURANCE WOULD COVER FOR A CAR REPAIR SHOP
Example 1: One of your mechanics causes an accident while test-driving a customer’s car, and the accident totals a third party’s vehicle. General liability insurance would likely cover the damage to the third party’s vehicle. (The customer’s vehicle would be covered under a different insurance policy.)
Example 2: A customer is brought into one of your service bays so that they can see their vehicle’s issue in person. While in the bay, a part stored overhead falls and hurts the customer. General liability insurance would likely cover the injuries.
Example 3: While moving a customer’s vehicle out of a service bay, one of your mechanics accidentally backs the vehicle into the service bay door. General liability insurance would probably cover the damage to the door and to the customer’s vehicle.
Of course, this is not an exhaustive list of perils a general liability insurance policy will cover, and some conditions may result in a particular peril not being covered. It’s always best to talk to your agent in-depth about the specifics of your policy to avoid blind spots in coverage.
COST OF GENERAL LIABILITY INSURANCE
The average car repair shop in America spends between $400-$700 per year for $1 million in general liability coverage.
Check out the chart below for a snapshot of average CGL expenditure across a variety of industries:
Several factors will determine the price of your policy. These include your:
- Number of employees
- Per-occurrence limit
- General aggregate limit
You may be able to acquire general liability insurance at a discounted rate by purchasing it as part of a business owner’s policy (BOP) rather than as a standalone policy. A BOP is a more comprehensive solution that includes multiple forms of coverage, such as business interruption and property insurance.
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OTHER TYPES OF COVERAGE CAR REPAIR SHOPS NEED
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all car repair shops should obtain:
Commercial Property Insurance
In addition to covering the property itself, commercial property insurance can also cover items owned by the business and kept on the business’ property. If your auto repair shop owns the building in which it is located, that building will likely need commercial property insurance to protect it.
Buildings like these often have pricey build-outs and lots of specialized tools. Be sure you have enough coverage to replace the building and/or equipment in the event of a loss. This coverage is frequently available as part of a business owner’s policy (BOP).
Workers’ Compensation Insurance
Assuming your auto repair shop has employees, the business may be required by state law to carry workers’ compensation insurance. Workers’ compensation normally covers on-the-job injuries sustained by employees.
Working in auto repair shops can be hazardous, so you’ll want to make sure every employee is adequately covered. If you work directly on vehicles, this might even include you -- even if you aren’t legally required to cover yourself with this policy. Workers’ compensation is typically purchased as a standalone policy.
TYPES OF COVERAGE SOME CAR REPAIR SHOPS MAY NEED
In addition to the policies outlined above, there are a few other types of coverage your car repair shop may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.
Commercial Auto Insurance
If your auto repair shop offers loaner vehicles and/or has its own tow truck, you are probably required to carry state-mandated minimum levels of commercial auto insurance. Vehicles that are driven on public roads must be insured in most states, and commercial auto insurance is needed for vehicles owned by a business.
You’ll likely want to carry much more insurance coverage than your state legally requires. In many cases, state-mandated minimums offer only basic protection and leave businesses exposed to an unsafe range of potential risks. Commercial auto insurance is frequently available as part of a business owners’ policy.
Commercial Umbrella Insurance
There are sizeable risks involved when working on and around vehicles. At times, the liability expenses associated with certain incidents can even exceed primary policy limits. Commercial umbrella liability insurance often supplements underlying primary policies to give businesses extra protection against large covered lawsuits.
ADDITIONAL STEPS TO PROTECT YOUR BUSINESS
Although it’s easy (and essential) to invest in business insurance, it should not be your frontline defense. Yes, insurance will compensate for your business’ financial losses after an incident occurs, but it’s much better to avoid losses altogether.
With this in mind, here are three things you can do to better protect your business:
- Use legally robust contracts and other business documents. (We offer free templates for some of the most common legal forms.)
- Set up a limited liability company (LLC) to protect your personal assets. (Refer to our guide for step-by-step instructions on how to form an LLC in your state.)
- Streamline your business’ internal processes. This will remove unnecessary variables from common tasks and create a safe, consistent environment for conducting business.
FREQUENTLY ASKED QUESTIONS
What is included in a business owner’s policy?
A typical business owner’s policy includes general liability, business interruption, and property insurance. However, BOPs are often customizable, so your agent may recommend adding professional liability, commercial auto, or other types of coverage to your package depending on your company’s needs.
What is the difference between business insurance and general liability insurance?
“Business insurance” is a generic term used to describe many different types of coverage a business may need. General liability insurance, on the other hand, is a specific type of coverage that business owners need to protect their assets.
Do I need insurance before I start a business?
You should invest in coverage for your business before your first interaction with a customer. Although the cost of insurance may seem high for a brand new business, it’s best to be proactive when it comes to protecting your assets. After all, you can’t buy insurance to cover a loss that has already occurred.
Will insurance protect my business from everything?
Not necessarily. Certain exceptions may be written directly into your policy, and some perils may be entirely uninsurable. Be sure to discuss the scope of your policy in-depth with your agent to avoid being blindsided by holes in your coverage.