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 WOODWORKER
Example 1: A visitor to your woodshop turns on a circular saw when you are not looking and sustains a serious injury. He decides to take legal action against your business, claiming your company is responsible for his injuries. Your general liability insurance policy will cover your legal fees while defending yourself from his claim. The policy will also pay for a settlement if the case is settled out of court.
Example 2: You are using a dolly to move supplies from your vehicle to the inside of your shop. A potential customer has arrived, and you accidentally run over her foot with the dolly. The weight of the supplies and the dolly are enough to cause a serious injury. The general liability insurance policy you have will likely cover the cost of treating her injuries.
Example 3: You find an old sign when gathering reclaimed wood. You decide the logo on the sign is perfect for your woodworking business, so you begin to use it in your marketing materials. Another business sees you using the logo and takes legal action against your business, claiming that they own the logo. Your general liability insurance policy will pay for your legal defense as well as the cost of settling out of court if you do so.
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 woodworker in America spends between $500-$1,500 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 WOODWORKERS 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 woodworkers should obtain:
Product Liability Insurance
All businesses that produce products that are purchased by the general public can benefit from product liability insurance. For example, a customer might purchase a bookcase from your woodworking shop. If she took the bookcase home, filled it with books, and then the bookcase fell over on her, she could sustain serious injuries. If she decided that her injuries were caused by your bookcase, she could take legal action against your business. A product liability insurance policy would pay for your legal costs when defending yourself from such a lawsuit, including the cost of paying a settlement if you settle out of court.
Commercial Property Insurance
You have invested significant funds in woodworking tools and supplies, all of which make it possible for you to operate your business. Unfortunately, there is the possibility that tragedy—such as a big fire—could strike and wipe out your equipment and supplies. The expense of replacing all of your equipment and supplies would probably be substantial—maybe too much for your business to afford. But if you have a commercial property insurance policy, then your policy would help to cover those replacement costs.
TYPES OF COVERAGE SOME WOODWORKERS MAY NEED
In addition to the policies outlined above, there are a few other types of coverage your woodshop 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.
Workers’ Compensation Insurance
The state your business is located in most likely requires you to carry workers’ comp insurance if you have employees. The workers’ comp policy that you have will go a long way towards helping you protect your employees, paying for medical care to treat work-related injuries and helping to cover lost wages if employees are unable to work.
Commercial Umbrella Insurance
A commercial umbrella insurance policy is designed to take over when a general liability insurance policy leaves off. All policies have limits, and your general liability insurance policy is no exception. If you find yourself in a situation where your general liability limits are exceeded, like if you lose a big lawsuit, then your commercial umbrella policy will start paying until its limits are reached. With a commercial umbrella policy, you are not forced to pay damages out of pocket once your general liability policy is exhausted.
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.