What Kind of Small Business Insurance Do I Need?

Small business owners should consider buying various types of liability and property insurance that will protect their assets in case they face lawsuits or perils that could harm their business property. They also may be required to purchase certain types of coverage depending on the state they live in and the industry they work in.

Keep reading for a comprehensive overview of the most common types of small business insurance and how you can obtain the best policy that fits your company’s needs and budget.

Key Takeaways A business owners policy is a popular coverage bundle for small business owners, combining general liability, commercial property and business interruption insurance. Many businesses are required by law to purchase workers’ compensation and commercial auto insurance, while other coverage types may be required to do business in your specific industry. Other coverage types small business owners should consider include professional liability and cyber insurance. Small business insurance may cost around $331 per month but your premiums will depend on factors like your location, the details of your policy and the size and scope of your company.

Do I Need Small Business Insurance?

Depending on your location and circumstances, you may be required to purchase some types of commercial insurance for your small business. For example, most states have laws dictating when businesses are required to maintain workers’ compensation insurance and commercial auto insurance.^[1][2]

In addition, there are other coverage types that aren’t required by law but may be required to do business in your specific industry. For example, consultants are often required by prospective clients to carry general liability insurance.^[3]

It’s recommended that you purchase more than just the minimum required coverage for your business. There are several optional coverage types that can help protect you from costly lawsuits and damaging perils that could otherwise demand a large out-of-pocket payment and potentially jeopardize your company.

What Does Small Business Insurance Cover?

A typical small business insurance policy should include various types of liability coverage to shield you from lawsuits anytime a client, employee or other company claims to have experienced harm because of your business.

Along with small business liability insurance, your policy should include various types of property coverage to insure your business property against sudden perils like fire, hail, theft and vandalism.

You may also be able to buy industry-specific coverage types that address the unique risks your business faces compared to other small businesses. Examples of these coverage types include crop insurance for agribusinesses and liquor liability insurance for bar and restaurant owners.

What Isn’t Covered?

Commercial insurance generally won’t cover damage to your business property caused by wear and tear or poor maintenance. In addition, your insurance provider will likely exclude coverage for liability claims related to an intentional criminal action on your part.

Otherwise, you should be able to cover most other situations by purchasing the right type of insurance. For example, although most kinds of property insurance exclude coverage for floods and earthquakes, you can insure your business property against these perils if you buy commercial flood and earthquake insurance.

Small Business Insurance Types To Consider

Read below for an overview of some of the most common types of insurance for small business owners to consider.

General Liability Insurance

For most businesses, general liability insurance is the most fundamental coverage type as it can cover medical expenses if a guest incurs an injury on the premises of your business and property repairs if their belongings are damaged.

General liability insurance for small business owners can also cover lawsuits related to claims of bodily injury, property damage or personal and advertising injury. This means your insurance company can fund your legal defense or pay out settlements and judgments if you are sued for violating copyright law or defaming another person or business.

Commercial Property Insurance

Commercial property insurance covers both the structure of any buildings you operate out of and items stored inside those buildings like equipment, inventory, documents and furniture. It can pay to repair or replace your commercial property anytime it is damaged by a covered peril like fire or theft.

Many small and midsized businesses opt to purchase a business owners policy (BOP), which often bundles general liability, commercial property and business interruption insurance. If you have business interruption coverage, your insurer will take care of any expenses that arise when a covered peril temporarily prevents you from running your business as usual.

Professional Liability Insurance

Professional liability insurance can cover legal expenses if you are sued for failing to correctly carry out your professional responsibilities and negatively impacting someone as a result. It is also called errors and omissions (E&O) insurance because it covers claims related to mistakes like negligence, misrepresentation and breach of contract.

Workers’ Compensation Insurance

Workers’ compensation insurance provides assistance for any of your employees who become sick or injured on the job. It can pay for their medical treatments and rehabilitation, make up for any income they lose while they are out of work and offer long-term disability benefits if necessary. In addition, if the employee dies due to their work-related injury, workers’ compensation coverage can provide a death benefit to their loved ones.

Every state has legal requirements regarding workers’ compensation insurance. Most states require it for all companies with multiple employees and some states even require it for companies with only a single employee. The main exception is Texas, where workers’ compensation rules only apply to businesses that contract with a governmental entity.^[1]

Commercial Auto Insurance

You will need to buy commercial auto coverage to insure any vehicles you use for commercial purposes because car insurance is required by law in almost every state and personal auto insurance policies often exclude coverage for business activities. The minimum car insurance requirements in each state are usually the same for both commercial and personal policies.^[2]

Cyber Insurance

Cyber insurance can cover legal expenses that stem from liability claims after your business is the victim of a cybercrime such as a data breach. If you digitally store any of your clients’ information like their credit card numbers or contact information, cyber liability insurance can help you deal with the fallout if any of that information is illegally accessed or leaked.

Additional Policies To Consider

Many small business owners may also want to consider adding the following common coverage types to their commercial insurance policies:

• Commercial umbrella insurance: Commercial umbrella insurance is a type of excess liability coverage, meaning it can step in to provide extra coverage if a costly claim exceeds your regular coverage limit. As its name suggests, commercial umbrella insurance can provide excess coverage for multiple liability insurance policies at a time.
• Product liability insurance: Product liability insurance can cover legal expenses that arise after one of your customers claims they have been negatively impacted due to an error in the design, manufacturing or marketing of a product you sell or use at your business. Some insurance companies sell general liability policies that automatically include product liability coverage.
• Inland marine insurance: If your business ever transports products or equipment from one location to another, inland marine insurance is necessary to cover your business property while it is in transit.
• Equipment breakdown insurance: While commercial property coverage should insure your business equipment against external perils, you will need equipment breakdown insurance to cover equipment repairs and replacements after internal failures like short circuits and mechanical breakdowns.
• D&O liability insurance: Directors and officers (D&O) liability insurance specifically covers business executives in case they are sued for mismanaging a company, breaching fiduciary duty, misusing company funds or otherwise neglecting to lead the company lawfully and effectively.
• Commercial crime insurance: Commercial crime insurance can mitigate losses that stem from employee dishonesty or theft and other crimes like fraud or forgery.
• EPLI: Employment practices liability insurance (EPLI) protects business owners and managers if they are accused of violating an employee’s rights. It includes coverage for claims related to wrongful termination, discrimination, sexual harassment, retaliation and more.
• EBL coverage: Employee benefits liability (EBL) insurance covers legal expenses if an employee sues your business due to an error in the administration of their benefits. For example, EBL coverage could kick in if your human resources manager gives an employee inaccurate information about their retirement benefits or forgets to enroll them in the company’s health insurance plan.

How Much Does Small Business Insurance Cost?

Small business insurance prices largely depend on the insurance carrier you select and the coverage types included in your policy. For example, The Hartford’s small business customers pay $331 per month on average for a BOP plus workers’ compensation insurance.^[4]

However, there are several other factors that can impact the cost of commercial coverage including how risky your industry is, how many employees you have, where your business is located, what coverage limits you select and how many claims you have filed in the past.

How Do I Get Insurance for My Small Business?

As you shop for the best small business insurance, it’s helpful to get quotes from three to five different insurance companies. You’ll need to tell them your location, your yearly earnings, the number of employees you have and what your insurance needs are.

To avoid the hassle of reaching out to multiple insurers individually, you should take advantage of an insurance marketplace like SmartFinancial. Our online platform can get you in touch with an insurance agent in your area after you fill out our questionnaire. If you’re interested in obtaining a free commercial insurance quote, type your zip code below.

How To Make a Small Business Insurance Claim

You should take the following steps anytime you need to file a business insurance claim, especially one involving damaged property:

1. Call 911 and have the responding officers fill out a police report if your claim is related to a criminal action.
2. Take photos of the damage and collect other types of evidence like security video footage.
3. Contact your insurance company and submit evidence pertaining to your claim including photos and videos, explanatory documents, police reports and repair estimates.
4. Analyze the settlement your insurer offers and accept it if you believe it is fair.
5. Use the money your insurance provider gives you to finish making repairs so you can get your business up and running as usual again.