General Liability vs. Workers’ Compensation Insurance
When thinking about starting your own small business there are many decisions to be made. Choosing the right insurance for the business will help protect your employees, products and services, property, and finances in general. Both workers’ compensation insurance and general liability insurance are beneficial for the business, but their emphasis is different. Each of them secures you from different types of claims and here we will list similarities and differences as well as coverage of the two.
What is General Liability Insurance?
General liability insurance or commercial general liability does not cover employees’ injuries but third parties such as non-employees and customers. This type of insurance is used to manage general risks in doing business. General liability claim may be filed in case:
- Passerby or customer is hurt on your property of business
- You or your employee damages someone else’s property
- Your business hurts someone with fake advertising or defamation
It is not mandatory in every state to own general liability insurance except for some specific industries such as construction. It is advisable to buy it since it can pay for court and lawyer’s fees and settlement in case of an accident.
What Is Workers’ Compensation Insurance
Workers’ compensation insurance or workman’s comp is a state mandatory type of coverage, and it helps protect both employees and employer. In case an employee experiences an injury or occupational illness the workman’s comp will cover medical bills and lost wages and employers don’t have to pay from their own pocket.
Even if you have one employee or part-time employee’s, worker’s compensation is mandatory by California law. Sole proprietors or independent contractors can buy insurance to protect themselves because health insurance won’t cover all the bills.
Who Needs General Liability and Workman’s Comp?
General Liability is considered minimum coverage for small business owners if:
- You have contact with customers
- Your business allows clients or customers visits
- Your employees work offsite
- You advertise business
- Working on other person’s property
Workers’ compensation is advisable to purchase depending on the industry of your business and if:
- Your employee gets an injury on workplace
- Employee gets occupational illness
- Your employee suffers from temporary or permanent disability from an injury
- If you are a roofer
Differences Between General Liability and Workers’ Compensation
The main difference between these two types of coverage is who receives benefits from the claim.
- Anyone who is hurt by the event, no matter if it is an employee or not, benefits from general liability.
- Anyone who is employed by the company and gets injured at the workplace benefits from workman’s comp.
Other differences include:
- General liability is common sense choice for your business whereas workers’ compensation is state regulated.
- General liability does not necessarily pay for an employee’s injuries, but workers’ compensation covers the injuries of an employee while on the job.
- General liability covers legal fees and property damage concerning the accident, while the workman’s comp doesn’t.
- Commercial liability covers negligence claims and the workman’s comp is no-fault insurance.
Similarities Between General Liability and Workers’ Compensation
Both insurances deal with the following:
- Bodily injuries – General liability insurance will protect you if a client or customer suffers an injury on your business property and files a lawsuit for medical expenses. Workers’ compensation helps your employees cover their bills when being injured while working.
- Covering construction workers – General contractors may require the workers to purchase their own general liability and workman’s comp insurance. The former would cover law fees if you injured a third party on the work property or damaged the place of work. The letter would mean workers won’t be covered by general contractors’ policy.
What Is Covered by General Liability Insurance
Most general liability policies include three main coverages named Coverage A, B, and C.
Coverage A includes:
- Third-party body injury refers to getting harmed by an employee or business service. Under this coverage, accident-related business losses are protected.
- Third-party property damage refers to when an employee damages property at their workplace or business premises.
Coverage B includes advertising and personal injury, which protects your business from defamation, libel, false advertising, and copyright infringement.
Coverage C helps pay third-party medical expenses if they get hurt on premises and seek medical attention.
What Is Not Covered by General Liability Insurance
- Injury of an employee: General liability does not cover an employee’s injury at work.
- Alcohol liability: If your business sells alcohol and a third party gets drunk and injures someone or damages the property, liquor liability will be covered for this.
- Professional liability: General liability covers nonprofessional negligence and professional liability would cover malpractice and clients’ accusations. This liability will mostly apply to attorneys, doctors, and investment advisors.
- Product liability: Product liability is needed if your product causes third-party injury since not all general liability policies include it.
What Is Covered by Workers’ Compensation Insurance
- Workplace-related injury of an employee: Besides bodily injuries, workers’ compensation in some states covers PTSD and work-related stress.
- Occupational illness caused by job or workplace: This can include many things, such as being exposed to harmful materials or developing illness due to work conditions.
- Employee injury caused by violence
- Employee injury caused by natural disasters
- Car accident while performing work-related duties: An employee could get compensated if an accident occurred from one worksite to another but not if he/she was commuting to or from work.
What Is Not Covered by Workers’ Compensation Insurance
- Vehicle accidents while commuting to work or going back home.
- If an employee was under drug or alcohol influence when the accident occurred.
- An injury that an employee intentionally caused.
- If an employee does not follow OSHA procedures while operating heavy machinery.
General Liability Cost
There are some important factors on which the cost of general liability insurance depends.
- Exposure to risk depends on if your business is a high-risk industry.
- If you run your business in the middle of the city and in more populated areas, the risk of claims is bigger.
- Work experience is a big factor since recently open businesses have less years of operating, and this increases the cost.
- The history of claims affects the cost because having fewer of them makes your business safe.
- The cost also depends on the amount of limit you put or increase on your policy.
Workers’ Compensation Cost
Similar things are included in the workers’ compensation factor that influence the cost of the policy. In California, the average cost is $1.61 per $100 in covered payroll.
How can we calculate?
Workers’ Class Code Rate X Claims Experience Modifier X Payroll/$100 = We get premium
But of course, this is not definite. Every insurance provider has their own calculation, mostly based on payroll, industry risk, history of claims and types of work employees perform. Small businesses would pay smaller rates.
Scenarios for Potential Claims
Here are some examples of both insurance potential claims.
Workers’ compensation possible scenarios:
- A worker was moving boxes around the warehouse, and one fell and broke his/her foot.
- While picking up tools for a new project, a construction worker gets in an accident and injures his neck.
- An employee trips and falls down the stairs in the office
General liability and possible accidents:
- Your employee was painting a customer’s wall and accidentally damaged it.
- The competition claims you stole his advertising idea.
- An employee was fixing the bathroom pipe in customer’s home. Unfortunately, he fixed the wrong one and flooded the whole floor.
Choose The Best Small Business Insurance for Your Company
If you plan to run a strong business, it is more likely that your company needs both general liability and worker’s comp policies. In the last 50 years, H&M insurance covered many small businesses with their own custom-made insurance plan. We will make sure to choose the best insurance provider among which are: Nationwide, Markel, Employers, Safeco, CIG etc.
We are San Diego based, and we have great insight into local and California state market. Our services will help you to save your finances from decline. Many situations while running a business happen unexpectedly and can lead to many consequences. Call us today on (619) 296-0005 for free quote and get best solution for protecting your business and employees.
