What Is Business Insurance and How Does It Work?
 Written by Derek San Filippo Derek San FilippoDerek has written 100+ articles on property & casualty, health and life insurance topics as an insurance expert for Smar... Read more |  Edited by Dan MarticioDan MarticioDan Marticio is the content manager at SmartFinancial and has written 150+ articles across multiple insurance verticals.... Read more |
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Business insurance protects companies both large and small from liability and property damage claims and other risks. The cost of coverage will vary depending on the various types of insurance you include in your policy.
Learn about the different business insurance types you can purchase, their cost, and how you can get the right coverage for your company.
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Key Takeaways
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Do I Need Insurance for My Business?
Small business owners as well as large companies will likely be required to carry at least some level of commercial insurance, either for licensure or if they have employees. Keep in mind that state and federal requirements will differ. To find out what types of insurance are required for your business, you can contact your state's insurance department or a licensed insurance agent.
Failing to have the required insurance for your company can result in hefty fines you will have to pay out-of-pocket, as well as felony charges.
What Does Business Insurance Cover?
Business insurance can cover a wide range of risks and liabilities that your company may face, including:
- Property damage: This includes damage or loss of physical assets, such as buildings, equipment, inventory and other property.
- Liability: Coverage typically involves bodily injury or property damage caused by the business or its employees. Slip-and-falls are common types of accidents in which the business would be held liable.
- Product liability: Business insurance can cover liability claims arising from the use of products (e.g., a helmet that does not properly protect the user’s head).
- Business interruption: Lost income and additional expenses incurred as a result of an interruption in business operations due to a covered event, such as a fire or natural disaster can be covered.
- Cybersecurity: Business insurance can cover losses and liabilities related to data breaches and other cyber risks.
- Professional liability: Covers liability claims that arise from errors or omissions in professional services provided by the business, such as a breach of contract or negligence.
- Workers' compensation: A type of insurance that provides wage replacement and medical benefits to employees who are injured or become ill as a result of their job.
How Much Does Business Insurance Cost?
The cost of business insurance will vary depending on the types of coverage you include in your policy with prices typically being $500 a month and up. The calculation of your business insurance premium depends on several factors. Some of the common factors that influence the calculation of your business insurance are:
- Business type and size: Businesses that are involved in high-risk activities such as construction or transportation or that have hundreds of employees, may have higher premiums than a small retail store.
- Location: If your business is located in an area with a higher crime rate or prone to natural disasters, your insurance cost may be higher.
- Coverage types: If you choose more coverage types to include on your policy, your premium will be higher.
- Claim history: Businesses with a history of frequent claims will have higher premiums.
- Deductible: Choosing a higher deductible can lower your insurance cost.
What Types of Business Insurance Are There?
There are several options you can choose from when looking for insurance for your business, depending on your needs and risks. Below is a breakdown of the various business insurance types available to you so your business can get the coverage it needs
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Coverage |
Description |
Cost Per Month |
|---|---|---|
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Protects your business from bodily injury or property damage caused by you or an employee. |
$88[1] |
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Office space will be covered if it is damaged or destroyed by a covered event. |
$25 - $100[2] |
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Also known as business interruption insurance, covers lost income and operating expenses of a business due to a covered event, such as a fire, natural disaster or other unforeseen circumstance that causes the business to temporarily close or reduces its ability to operate. |
N/A |
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Bundled policy that includes general liability coverage, commercial property coverage and business interruption insurance. |
$261[3] |
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Company will be covered for claims of negligence, misrepresentation, inaccurate advice and personal injury such as libel or slander. |
$42 - $83[4] |
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Provides benefits to employees that can help them recover from a work-related illness or injury. |
$70 - $111[5] |
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Liability coverage when an employee is at fault for hurting someone or damaging another’s property while driving a company car. May also include first-party benefits, like physical damage and medical coverage. |
$50 - $200[6] |
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Inland Marine |
Equipment or tools owned by your business will be protected while in transit between job sites. |
$61[7] |
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Disability |
Provides income replacement to an individual in the event that they are unable to work due to a disability or illness that is not caused by work. |
$25 - $500[8] |
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Cyber Liability |
Protects businesses from financial losses due to cyber attacks or data breaches. |
$125[9] |
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Type of insurance that provides additional liability coverage beyond the limits of a company's primary liability policies, such as general liability and auto liability. |
$73.60[10] |
How Do I Get Business Insurance?
You can get business insurance by looking for insurance providers that specialize in commercial coverage. Here are the steps you can follow to get business insurance:
- Identify the type of insurance you need: Consider whether you should purchase or are required to have general liability, property, professional liability, worker’s compensation or some other policy.
- Research insurance providers: You can search online, ask for referrals from other business owners or consult with an insurance broker to narrow down your search.
- Compare quotes: Contact the insurance providers and get quotes from them. Look at the coverage, premiums, deductibles and other terms and conditions to find the best option for your business.
- Apply for insurance: To provide your final rate, the insurer may ask for details about your business, such as its industry, number of employees and annual revenue.
- Pay premiums: The premiums may be paid on a monthly, quarterly or annual basis.
- Review and renew: Look at your insurance policy periodically to ensure it meets your needs. You may need to renew your policy annually or as specified in the terms of the policy.
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Derek has written 100+ articles on property & casualty, health and life insurance topics as an insurance expert for SmartFinancial. Within his decade-long career writing about finances, entertainment, religion and philosophy, Derek spent three years writing financial articles for credit unions throughout the U.S. He prides himself on his ability to translate complex topics into actionable tips for everyday people.
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