Here's the short answer: most small businesses need at least $1 million in general liability insurance per occurrence, with a $2 million aggregate limit. But before you rush off to buy a policy, let's talk about why that number matters—and whether it's actually right for your business.
General liability insurance protects your business from claims of bodily injury, property damage, and advertising injury. If a customer slips and falls in your shop, or you accidentally damage a client's property while working, this coverage steps in. The question isn't whether you need it—it's how much coverage will actually protect you.
Understanding the $1M/$2M Standard
When insurance agents talk about "$1M/$2M coverage," they're referring to two separate limits on your policy. The first number—$1 million per occurrence—is the maximum your insurance will pay for any single incident. Someone gets hurt at your business? That claim is covered up to $1 million.
The second number—$2 million aggregate—is the total amount your insurer will pay during your policy's one-year term, no matter how many claims you have. Think of it as your annual limit across all incidents. Once you hit that $2 million ceiling, you're paying out of pocket until your policy renews.
This combination has become the small business standard for good reason. Over 91% of small business owners choose this coverage level, and it satisfies the requirements in most commercial leases and vendor contracts. More importantly, it provides solid protection without breaking the bank—the average policy costs between $42 and $69 per month.
When Contracts Require More Coverage
Here's where things get real: your ideal coverage amount isn't just about what you think you need. It's about what your contracts demand. Landlords typically require $1 million as a minimum before they'll let you sign a commercial lease. Client contracts almost always specify a minimum coverage limit—usually $1 million, sometimes more.
If you work in construction, manufacturing, or product distribution, expect higher requirements. These risk-heavy industries often require $2 million per occurrence or more. Some large clients or government contracts may even require $5 million or $10 million in coverage. In those cases, you'll likely need an umbrella policy that extends beyond your standard general liability limits.
Before you buy coverage, pull out your existing contracts and actually read the insurance requirements section. You might discover you need more coverage than you thought—or that you've been paying for more than necessary. Either way, you'll know exactly what your business needs to stay compliant.
Factors That Determine Your Coverage Needs
Beyond contract requirements, several factors should influence how much coverage you carry. Your industry matters enormously. A freelance graphic designer working from home faces different risks than a restaurant owner with customers walking through the door all day. The more public interaction you have, the more exposure you face—and the more insurance you probably need.
Your business size and revenue play a role too. Higher revenue typically means more customers, more interactions, and more potential for things to go wrong. If you're pulling in $500,000 in annual revenue with a dozen employees, you're facing more liability exposure than a solo consultant earning $75,000.
Location matters more than you might think. If you operate in states like California, New York, or Florida—where lawsuits are more common and cost of living is higher—claims can get expensive fast. What might be a $50,000 slip-and-fall claim in Ohio could easily be a $200,000 claim in Manhattan.
Finally, consider your assets. If you own your building, have significant equipment, or have built up substantial business savings, you have more to protect. A lawsuit that exceeds your coverage limits could put those assets at risk. In that case, paying a bit more for higher limits—or adding an umbrella policy—makes financial sense.
What About Lower Coverage Limits?
Some insurers offer policies with lower limits—like $500,000 per occurrence or $1 million per occurrence with only $1 million aggregate. These policies cost less, which sounds appealing. But here's the catch: they often don't meet the requirements in commercial contracts and leases.
Even if you're not contractually required to carry higher limits, consider the real-world cost of liability claims. Medical bills, legal fees, and settlement costs add up quickly. A serious injury could easily generate a $500,000 claim—and if your policy only covers $500,000, you're personally liable for anything beyond that, including legal defense costs that often aren't included in the coverage limit.
The cost difference between a $500,000 policy and a $1 million policy is usually modest—often just $10-20 per month. That small investment buys you significantly more protection and peace of mind.
When You Need More Than the Standard
Some businesses need to go beyond the $1M/$2M standard. High-risk industries—think construction contractors, product manufacturers, or event venues—face more severe potential claims. If you're in one of these fields, consider coverage of $2 million per occurrence or higher.
For businesses that need even more protection, commercial umbrella insurance provides an extra layer. These policies kick in when a claim exceeds your general liability limits, offering coverage up to $5 million, $10 million, or more. Umbrella coverage is surprisingly affordable—often a few hundred dollars per year—because it only pays out for catastrophic claims.
If you've built significant wealth through your business or have substantial personal assets, umbrella coverage protects not just your business but your personal finances too. It's worth a conversation with your insurance agent to see if it makes sense for your situation.
How to Choose the Right Coverage Amount
Start by reviewing your contractual obligations. Pull out your commercial lease, client contracts, and vendor agreements. What do they require? That's your baseline.
Next, assess your actual risk. How much public interaction does your business involve? Do you work at client sites where you could damage property? Do you manufacture or sell products that could cause injury? Higher risk means you need higher limits.
Consider your assets and what you stand to lose. If you own your building, have valuable equipment, or have built up significant savings, you need enough coverage to protect those assets from a lawsuit. Remember: a judgment that exceeds your coverage limits comes out of your pocket.
Finally, talk to an insurance professional. They can assess your specific situation and recommend coverage amounts that make sense for your business. Most importantly, they can help you understand the cost difference between coverage levels—you might be surprised how affordable it is to increase your protection.
Getting Started with General Liability Coverage
For most small businesses, a $1 million per occurrence / $2 million aggregate policy hits the sweet spot. It's affordable, widely accepted in contracts, and provides solid protection against common liability claims. With an average cost of just $42-69 per month, it's one of the most cost-effective ways to protect your business from financial disaster.
Ready to get coverage? Start by getting quotes from multiple insurers to compare prices. Make sure you're comparing apples to apples—same coverage limits, same deductibles. And don't just chase the lowest price. Look at the insurer's reputation for paying claims and their customer service ratings. When you actually need to file a claim, you'll be glad you chose a reliable company.
Remember, insurance isn't just about checking a box on your commercial lease. It's about protecting the business you've worked hard to build. The right coverage gives you the confidence to grow without constantly worrying about what might go wrong.
