Key takeaways:
- Liability insurance protects your business if it is sued for doing something, or failing to do something, that causes harm.
- General liability insurance policies can pay out to cover medical costs after injuries, repair costs after property damage, legal expenses and settlement costs. All business owners should have general liability insurance.
- Depending on what your business does, you may need additional types of liability coverage, such as errors and omissions insurance.
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What is business liability insurance?
In general, liability insurance protects your business if it causes harm to a person or their property. It pays out to cover your legal costs, whether or not your business is at fault.
General liability insurance is the most common type of business liability coverage. If your business harms or is accused of harming someone or their property, this can cover medical bills, property repairs, legal costs and settlements up to the policy’s limit.
We recommend that every business have general liability insurance. But you may need other business insurance policies to protect against different risks. For example:
- A product you sell turns out to be defective, and injured customers file lawsuits to recoup their medical costs. Product liability insurance could cover that expense.
- A doctor makes a mistake during a procedure that results in a patient’s death and has to pay a settlement to the patient’s family. Medical malpractice insurance, which is a type of professional liability insurance, could cover that expense.
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What does commercial liability insurance cover?
In general, liability insurance covers legal costs. If a court finds the policyholder to be at fault, it also covers settlement costs. That may include medical expenses for someone who has been injured or repairs to property that has been damaged.
Many businesses need several different types of liability coverage, depending on what kinds of work they do, where they do it and whom they do it with.
Insurers may package some of the types of coverage below and sell them as one policy. Others, they may sell separately.
General liability insurance
General liability insurance covers your business when a third party or their property is harmed in your normal course of doing business. A general liability policy could pay out to cover medical costs for a customer who slips and falls in your store and then files a lawsuit, to use a common example.
General liability insurance can also cover repair costs if you or an employee damages someone else’s property on the job. And it can cover legal defense costs and settlement costs if your business is sued for libel, slander or violating copyright.
General liability insurance does not cover injuries that your employees sustain at work, though. For that, you’ll need workers’ compensation.
Professional liability insurance (errors and omissions insurance)
Professional liability coverage pays out if a business owner does something wrong, or fails to do something important, that results in harm to the customer.
Medical malpractice insurance, which covers doctors if they are sued after the injury or death of a patient, is a common type of professional liability insurance. But other professionals, especially those who give advice to clients, may need to carry professional liability insurance too. These include attorneys, accountants, architects, financial advisors and more.
Professional liability insurance can also be called errors and omissions insurance. It is typically not available as part of a business owner's policy. You have to purchase it separately.
Product liability insurance
Product liability insurance covers harm done by the products a business manufactures, distributes or sells. If you are sued for manufacturing a defective toy or selling contaminated lettuce, this type of coverage could protect your business.
General liability insurance policies include some protection for product liability claims. But some businesses need additional coverage.
Other types of liability insurance
There are many other kinds of liability insurance that protect businesses in specific situations. Like the types of coverage described above, these may be attached to other business insurance policies or purchased separately.
A few of the other kinds of liability insurance include:
- Cyber liability insurance can protect your business if it is hacked hacked and customers’ data is stolen.
- Employment practices liability insurance can pay out if your company is sued by current or former employees for violating their rights, such as in wrongful termination or sexual harassment lawsuits.
- Directors and officers insurance protects board members’ finances in case of lawsuits from shareholders or others related to the work they did on the board.
Commercial auto insurance
Commercial auto insurance policies include liability insurance, as well as other types of insurance coverage. Most states require businesses to have insurance for business vehicles.
Like personal auto insurance, commercial auto policies usually include:
- Liability coverage, which covers medical bills or property damage for the other people involved in the crash.
- Personal injury protection, which covers medical bills for the driver and any of their passengers.
- Uninsured motorist coverage, which pays for medical care and property damage if the other driver is at fault but doesn’t have insurance or if they flee the scene.
- Comprehensive and collision coverage, which cover damage caused by fire, flooding, vandalism or being hit by another car.
Commercial auto policies can cover any vehicles used to do the company’s business, whether or not the company owns those vehicles.
Workers’ compensation
Workers’ compensation covers medical expenses and lost wages if an employee is injured on the job. Workers' comp generally doesn't pay for legal claims because, if your employee accepts workers' comp payments, they give up their right to file a lawsuit.
Almost every state requires business owners to carry workers’ compensation insurance for their employees. Some states require it only once you reach a certain number of employees, though the rules can vary by industry.
What kind of business liability insurance do you need?
The short answer is: It depends.
We recommend that every business carry general liability insurance. This provides a baseline level of protection against legal claims.
Almost all states require that business owners carry workers’ compensation and commercial auto insurance. Your state may also have industry-specific regulations, like requiring that doctors have medical malpractice insurance or that lawyers have legal malpractice insurance.
Other stakeholders can set regulations too. For instance, state bar associations may require attorneys to disclose to clients whether or not they have professional liability insurance. Commercial property leases often require business owners to carry general liability coverage.
An insurance agent can help you assess your risks and choose the policies you need.
How much does commercial liability insurance cost?
Every type of liability insurance coverage will come with its own costs. And the price of each type of policy can vary dramatically depending on:
- What industry you’re in and what your business does.
- How many employees you have.
- How long you’ve been in business.
- Where your business is located.
- Your claims history.
- Other factors.
The cost of general liability insurance: Annual premiums range from $450 per year for low-risk businesses like florists to more than $7,000 per year for specialty construction businesses, like drywall contractors. That's according to 2026 data shared with NerdWallet by Coverdash, an online insurance agency.
The cost of professional liability insurance: Annual premiums range from $800 per year for beauty and hair salons to $2,800 per year for financial management consultants, according to Coverdash.
