In the modern society, a small accident can result in protracted and potentially money- sapping lawsuits. General liability insurance, therefore, becomes a necessity for most companies. General liability insurance protects a companys assets when it is facing a lawsuit for damages it may or may not have inflicted upon a person though injury or property damage.

General liability insurance can be bought independently or as part of a BOP (Business Owners Policy). A Business Owners Policy packs liability and property insurance into a single policy. The liability insurance coverage limits, however, are usually quite low. Businesses needing a greater coverage usually buy liability insurance as an independent policy.

In a general liability insurance policy, legal costs of a business in a covered liability lawsuit have to be paid by the insurer. Covered liability claims include property damage, bodily injury, personal injury and damages from false advertising, also called advertising injury. Insurance companies also cover general and compensatory damages. However, liability insurance policies do not cover punitive damages, as they are deemed punishment for deliberate actions.

General liability insurance policies always declare a maximum amount that insurers have to give during the policy period. Under the policy, there is also a maximum amount that the insurer has to pay per occurrence. For example, if a company has a $1.5 million occurrence cap and loses a lawsuit of $2 million; the insurance company is obligated to pay just the $1.5 million; the rest has to be paid by the business company.

As a cover against these types of circumstances, companies buy umbrella liability insurance, which comes into the picture where general liability coverage stops. It covers payments that go beyond the companys policy's limits and gives extra protection for liabilities not covered in the standard insurance policy.

Generally, there is a requirement for the policyholders to report to the insurance company as soon as an accident that can lead to a liability claim has taken place. The business owner will then have to help in the investigations, forward legal notices, etc.