As of 2024, 33.3 million businesses in the US are small businesses. Most fall into two main categories: traders and consultants.
General liability insurance is essential for small businesses. A Hiscox report found that one in three small business owners faced a liability claim last year, and the majority lacked sufficient coverage to handle it. It’s so surprising that 40% of small businesses don’t have business insurance.
Read on to learn why, for traders and consultants especially, business insurance matters so much.
Why General Liability Insurance Matters for Traders and Consultants
Every business carries risk, but traders and consultants sit on opposite ends of it. Traders handle physical services and products. Consultants handle advice.
For traders, one product malfunction or delivery error can trigger a claim. For consultants, a bad recommendation or a misunderstood statement can lead to financial loss for a client.
Comprehensive general liability insurance policies cover third-party injuries, property damage, and certain reputational issues like defamation. It doesn’t matter if you’re a self-employed trader selling goods online or a consultant advising a large firm; if someone decides your business caused them harm, you’ll need protection.
It’s also becoming an expectation. Many corporate clients won’t even work with contractors or consultants unless they show proof of general liability coverage.
For traders, some marketplaces, such as Amazon, and suppliers now require it before signing a contract.
How General Liability Insurance Works
When someone files a claim against your business, your insurer covers the legal fees, settlements, and damages. That being said, it’s only ever up to the limit of your policy. For most policies, the minimum cover is $1 million, which we hope you never face a claim for.
Here’s how it typically works:
- An incident occurs. A customer slips into your shop, or a client accuses you of damaging property during a job.
- They file a claim. You notify your insurer and provide documentation or evidence.
- Your insurer investigates. They assess liability and handle negotiations or settlements.
- The claim is resolved. If you’re covered, your insurer pays for the damages and your legal defense.
The coverage usually includes:
- Bodily injury: If someone gets hurt due to your business activity. We’d say this one is less common, but slips and falls do happen.
- Property damage: If you accidentally damage a client’s or customer’s property.
- Personal and advertising injury: This type of cover focuses on claims such as slander, defamation, or copyright infringement. It’s definitely becoming more common now that everything is so digital.
It’s not complicated. But the problem is that many small business owners don’t realize how often these claims happen.
What’s More Common: General Liability or Product Liability Claims
For traders, product liability claims are slightly more common. For consultants and service providers, general liability is the bigger risk.
Data from the National Association of Insurance Commissioners (NAIC) shows that general liability policies are among the most frequently purchased types of business insurance. They also account for a large share of claims filed by small firms each year.
The rest fall under niche categories like professional errors or cyber claims.
Physical harm or property damage happens more often than people think. Something as simple as a delivery driver scratching a client’s car or a customer tripping over equipment can trigger a claim worth thousands.
Product liability, on the other hand, happens when an item you sell causes harm or damage. It’s a separate policy for traders who manufacture, distribute, or sell physical goods.
The two often overlap, and many businesses have both types. It’s simple enough to add bolt-ons or stack insurance policies for more comprehensive coverage.
The Common Damages Claims Clients Make
Claims usually fall into three categories: injury, damage, or reputation. Here’s what small business owners experience most often:
- Slip-and-fall injuries
- Property damage
- Defamation or reputational harm
- Accidental advertising errors
Traders and consultants might work differently, but they share the same exposure and risk from the people they serve. General liability insurance is essential protection that safeguards your business against financial collapse due to a single claim.
