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Key Takeaways
- The best type of insurance for your small business depends on your industry and risk level.
- When determining your risk level, consider your industry, location, staff, and equipment, among other things.
- General liability, product liability, commercial property, home-based business, commercial auto, and workers’ compensation insurance are common coverage options for small businesses.
General liability insurance
This coverage is appropriate for all businesses. It protects against financial losses due to bodily injury, property damage, medical expenses, libel, slander, lawsuits, settlements, and judgments.
Product insurance liability
This coverage is appropriate for businesses that manufacture, sell, or distribute products. It protects against financial loss when a defective product leads to injury or bodily harm.
Professional liability insurance
This coverage, also known as errors and omissions insurance, is appropriate for businesses that provide services to customers. It protects against financial loss after malpractice, error, or negligence.
Commercial property insurance
This coverage is appropriate for businesses with significant property and physical assets. It protects against loss or damage due to events such as fire, smoke, wind, hailstorms, civil disobedience, and vandalism.
Home-based business insurance
This coverage is appropriate for businesses that are run from the owner’s home. It protects against loss of business equipment and liability for third-party injuries. Home-based business insurance is typically added to a homeowner’s insurance policy as a rider.
Business auto insurance
This coverage is appropriate for businesses that own automobiles. It protects against costs related to bodily injury or property damage for which the business is liable.
Workers’ compensation insurance
This coverage is appropriate for businesses with a specific number of employees, typically ranging from three to five, depending on the location. Workers’ compensation insurance protects against work-related injuries or illnesses, regardless of fault. All states, except Texas, require companies to have this coverage.
You may see the term “business owners policy” or BOP. This combines property and liability coverage. It’s not a separate type of insurance.
Other Types of Small Business Insurance
There are other, less common types of small business insurance available. Here are some options.
This coverage is appropriate for businesses with employees. It covers damages after an employer is found legally liable for violating an employee’s civil or legal rights. It pays out judgments and legal defense costs, up to policy limits.
This coverage is appropriate for corporations or nonprofit organizations with directors and officers. It protects against lawsuits for improper management of the business or organization as it relates to others’ rights. It pays judgments and legal defense costs.
This coverage, also referred to as life or disability income insurance, is appropriate for businesses with employees. It protects against the financial impact of a key employee dying or becoming disabled.
This coverage is appropriate for businesses with a potential for losses that go beyond a typical business policy limit. Commercial umbrella insurance provides additional financial protection if one of the underlying policy limits has been used up.
When determining the type of small business insurance you need, you have to assess your company’s risk level. Some considerations include:
- Industry: Is the business in a high-risk industry that may increase the likelihood of injuries or illnesses?
- Location: Are there weather- or crime-related risks that make your company more likely to need coverage?
- Number of employees: If you have a certain number of employees, you may need workers’ compensation insurance or other coverage to protect your company.
- Equipment: Do you have costly or dangerous equipment? You may need protection if it’s damaged in a covered event or leads to the injury of an employee.
The process of buying small business insurance will depend on the type of business you have, your coverage needs, and where you live, in some cases.
- Assess your risk level: Before buying your business insurance policies, first decide what risks you’re protecting against. Do you have employees, vehicles, or products? Is your business at risk for physical damage from weather-related events? Consider your risk level before deciding which coverage you need.
- Find an insurance agent: Next, work with a commercial insurance agent to help you find the policies that meet your needs. You can find an agent directly through an insurance company or work with an independent agent who isn’t associated with one company.
- Compare rates: Once you have a list of policies and companies that may fit your needs, compare your options. Coverage and costs can vary greatly, so doing this can help you make an informed decision. Also, consider other factors, such as customer reviews and financial stability.
- Re-assess your coverage: Every year, review your coverage to ensure you have the right amount to avoid being over- or underinsured.
How much small businesses pay for insurance will vary based on many factors, such as:
- Claims history: If the business has a long claims history, premiums may be higher.
- Industry: Businesses in industries with more risk, such as construction, are costlier to insure.
- Coverage level: Your coverage details, such as deductibles and policy limits, come with higher insurance premiums.
- Location: Insurance costs can vary based on the property size and your area.
- Business size: The more employees and customers you have, and in some cases (like with workers’ compensation insurance), the higher your payroll, the more you’ll pay for insurance.
The best way to know how much you’ll pay is to get a quote for your policy.
Business insurance provides financial protection against risks that could lead to losses. You pay annual, quarterly, or monthly premiums to an insurer, and it covers certain risks as outlined in the policy, such as property damage, liability claims, and employee injuries.
If there’s a covered event, you can file a claim with your insurer, which may approve a claim for your financial losses up to the policy limits. This allows you to manage risks and avoid major liabilities.
