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Workers' Compensation Insurance vs. General Liability: What’s the Difference?

general-liability.jpgDoes general liability insurance cover workers’ compensation? No, they are separate, but both important commercial insurance policies.

General liability and workers’ compensation insurance are two of the most basic small business insurance policies, but they’re often confused.

Don’t make the mistake of thinking just one policy will cover your business—read on for the similarities and differences between GL and work comp.

What Is General Liability Insurance?

A general liability policy covers bodily injury and personal and advertising injury (such as libel or slander) to any third party as a result of interacting with your business, employees or business property.

Bodily Injury

This could include customers, vendors, partners and other people who may come into contact with your business. A customer slips and falls in your restaurant or trips in your store, and breaks his ankle.

Property Damage

The policy also covers property damage if your business or employees damage the assets of a third-party in the line of work. For example, if your employee spills a bucket of paint in the customer’s office, your general liability policy would cover the cost of the carpet replacement.

Personal and Advertising Injury

Finally, general liability will also cover legal fees, court costs and damages for lawsuits that are covered by the policy. A competitor claims your employee’s negative comments about them have hurt business, and files a defamation lawsuit.

Is General Liability Required?

General liability is not legally required, but is widely recommended as a basic insurance product for all businesses to have. It also may be required contractually by vendors or business partners. Many companies expect proof of coverage from their business partners to ensure the other party is prepared with the proper insurance should the unexpected occur.

General Liability Resources

What Is Workers’ Compensation Insurance?

A workers’ compensation policy protects both employer and employee in case the employee sustains a work-related injury. Employee protections are in the form of payment for medical bills related to the injury and lost wages as a result of being unable to work. Employer protections are in the form of limited financial coverage for legal fees and damages.

Medical

A workers’ comp policy covers medical care for an employee that is injured (or contracts an illness) in their line of work.

Vocational Rehabilitation

If needed, the policy would cover rehabilitation to return the worker to health and transition them back to the workforce. This rehab might occur in conjunction with a Return-to-Work program. As the name suggests, Return-to-Work often helps an injured employee transition back to the workplace through part-time or remote work, modified role and responsibilities, or other accommodations.

Disability

If the worker is unable to return to work after the injury, workers’ compensation can cover disability benefits.

Death Benefits

In the event of an employee fatality, the policy pays out death benefits to the surviving family.

Employer Liability & Legal Costs

If the workers’ comp claim is challenged or an employee sues the employer for damages, the policy would defend and indemnify the employer. Insurance would cover the employer’s legal defense for the employer, plus any monies awarded to the employee; however, this portion of the policy does have limits.

Is Workers’ Compensation Required?

Maintaining current work comp coverage for all employees is legally required in the U.S. The specific requirements are determined by the laws in your state. For example, some very small businesses may be exempt, and high-risk businesses like construction might have stricter requirements. Always refer to your state’s requirements to make sure your business is compliant.

Related: Learn more about how workers’ compensation works.

In most states, a work comp policy—like general liability—can be purchased in the private marketplace from an insurance carrier or independent agency. In Ohio, North Dakota, Wyoming and Washington, employers must purchase their workers’ compensation policies directly from the state. These are called monopolistic states.

Workers' Compensation Resources 

General Liability and Workers’ Compensation: Similarities and Differences

Work comp and general liability are easily confused because both policies cover injury, property damage and legal fees. The difference between them is the people and situations they cover.

 

General Liability Workers' Compensation
Covers injuries to a third party or damage to their property Covers injuries to employees
Protects third parties Protects employees
Covers legal fees in suits brought by a third-party Covers legal fees in suits brought by an injured employee
Not legally required, but often contractually required Legally required 
Not regulated  Regulated at the state level 

 

What Insurance Policies Does My Small Business Need?

With few exceptions, all businesses should carry general liability and workers’ compensation policies to protect their employees and their assets. Both policies are similar in that price is determined by the coverage limits you choose, number of employees, total payroll and nature of the work.

Want more help? Read An Entrepreneur’s Guide to Small Business Insurance.

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Tags: workers compensation, insurance, small business