General liability and workers’ comp insurance both ensure you’re covered if someone sustains an injury at your business. However, these policies are distinct from each other, and which one you choose depends on the size and type of business you operate.
Here we’ll cover the similarities and differences so you can decide which insurance is best for you.
General liability insurance
General liability insurance protects your business if certain liabilities occur, including:
- Advertising injuries (trademark infringement, slander)
- Damage accidentally sustained to someone else’s property
- Bodily harm that someone sustains at your business who is not an employee
The caveat to be aware of with general liability insurance is that it does not cover employees’ injuries. It covers third-party damages to clients or customers.
General liability insurance covers court costs, settlements and judgments, and attorney's fees up to your policy's limit if a person sues you for any of the reasons mentioned above.
This type of insurance is typically considered essential, as accidental oversights or injuries such as these are almost assuredly going to strike at one point or another. If you have customers visiting your business, employees working offsite, or have customers on your property frequently, it’s a smart idea to purchase general liability insurance.
Note that general liability insurance doesn’t cover you if you are sued for the professional services you provide. Professional liability insurance is needed in this case.
You can purchase general liability insurance separately, or you can bundle it into a business owner policy (BOP). One standard package deal includes property coverage, business interruption, and general liability insurance, but these can be personalized to fit your needs appropriately.
Workers’ Compensation Insurance
Workers’ comp insurance covers you and your business in the event that an employee is injured or becomes ill on the job. Many states mandate employers have this coverage, even if they have as little as one employee.
Workers’ comp covers:
- Replacement wages if an employee can’t work due to the injury or illness sustained
- Medical and recovery expenses for any injured employees
- Liability expenses in the event that your business is sued for a work-related injury
- If fatal occupational injuries happen, funeral expenses and dependent support payments are covered
If you’re a sole proprietor, you can purchase workers’ comp insurance to cover yourself, though many skip this to avoid additional premiums.
Workers’ comp generally prevents injured or ill employees from being able to sue you for negligence. That said, if an employee feels your workers’ comp insurance isn’t sufficiently covering the losses they sustained as a result of being injured or ill, they may sue. Employer's liability insurance helps protect you in this sort of legal battle.
Luckily, by accepting workers’ comp insurance, most employees waive their right to sue.
Workers’ comp is required in many states, but even if it’s not in yours, it’s a smart idea to purchase this coverage. Without coverage, you open yourself to a host of other lawsuits on account of being “negligent” if an employee decides to sue, and these are expensive.
The policy you use for workers’ comp depends on the risks of the business it covers. Risk levels vary tremendously from a factory to a small nail salon. The National Council on Compensation Insurance (NCCI) found around 700 job types divided by class codes. These are used to determine coverage and premiums.
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Similarities Between Liability and Workers’ Comp Insurance
Both cover bodily injuries. General liability covers you in the event that a customer or client sustains an injury on your property; workers’ comp covers you if an employee sustains an injury on your property.
May be required in construction. In some states, construction workers need to carry workers’ comp insurance, even if they’re a sole proprietor. Additionally, if you work under a general contractor, that contractor is likely to require you to carry both types of coverage. General liability covers you if you injure yourself on another property, not uncommon in construction, and workers’ comp covers your medical expenses, meaning the general contractor doesn’t need to cover you with their policy.
Differences Between General Liability and Workers’ Comp Insurance
Although there are some similarities, it's essential to know how general liability and workers' compensation insurance are distinct.
General liability is essential irrespective of your business' size. Small business owners need to have general liability insurance, while workers' comp tends to matter after a company exceeds a specific size. Even if you have no employees, who knows when a client could sustain an injury or sue you for an accident.
State laws regulate workers’ compensation insurance. This varies based on your state, so make sure to check out your state’s workers’ comp laws. Most regulations around workers’ comp take effect when you exceed a specific number of employees. This may mean a single part-time or full-time employee and varies by state.
The critical distinction between general liability and workers’ comp insurance is that the latter covers employees who sustain an injury at your property, where the former covers customers or clients.
Depending on the size and type of business you run, one or both may be important to have. That said, general liability insurance is considered essential, so there’s no reason not to carry it. Check with your state’s regulations to make an informed decision.
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