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.
Learn more about the risks covered by general liability insurance.
COMMON SITUATIONS THAT GENERAL LIABILITY INSURANCE WOULD COVER FOR AN ECOMMERCE BUSINESS
Example 1: To gain further exposure for your business, you sign up to sell merchandise at a local convention. The convention requires all vendors to carry $1 million of liability insurance, and a general liability policy would fulfill that requirement.
Example 2: Your new website features a copyrighted photo, and the photo’s owner sues you for copyright infringement. General liability insurance would cover your legal fees and any payment awarded to the claimant (up to the limits of the policy).
Example 3: You plan to expand your business by offering additional items, but need a bank loan to move forward. Your bank requires evidence of liability insurance as part of its loan terms, and a general liability policy would fulfill that requirement.
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
On average, eCommerce businesses in America spend between $350 - $900 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.
Other Types of Coverage eCommerce businesses 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 eCommerce businesses should obtain.
Product Liability Insurance
While your eCommerce business doesn’t accept visitors to a physical office, you still face a number of liability risks. If someone claims a product you sell caused them injury or illness, product liability insurance would cover your legal fees and any awarded damages in the event of a lawsuit.
You can purchase product liability coverage — tailored to your business’ specific needs — as part of a business owners policy (BOP).
Data Breach Insurance
Studies indicate retailers face the greatest risk of a cyber attack — particularly those running eCommerce sites. Data breach insurance covers damages resulting from stolen customer information, and most general liability policies specifically exclude this type of coverage.
Commercial Property Insurance
As an eCommerce business, your company property is vital to your revenue stream. Commercial property insurance covers the cost of repairing or replacing any business-related property in the event of a fire, burglary, or natural disaster. This includes the items you sell and any business-owned buildings. Because an e-commerce company differs from brick-and-mortar retailers, owners should discuss the intricacies of their business with an insurance professional to ensure no coverage gaps.
You can purchase commercial property insurance as part of a business owners policy (BOP).
Types of Coverage Some eCommerce businesses May Need
In addition to the policies outlined above, there are a few other types of coverage your eCommerce business 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.
Business Interruption Insurance
If your company suffers a significant accident and loses inventory, you could be out of business for days, weeks, or months. Business interruption insurance can help cover some of your lost revenue while you make repairs and restock, ensuring your company doesn’t fail before you’re back up and running.
You can purchase business interruption insurance as part of a business owners policy (BOP).
Workers’ Compensation Insurance
Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a work-related accident. These policies also cover your legal fees if an injured employee names your business in a lawsuit.
While many states allow business owners to exclude themselves on their workers’ compensation policy, consider skipping this option if you plan to participate in your business’ daily operations.
You can purchase this coverage as a standalone policy.
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.