Small Business Insurance – The Types of Coverage You Need

Making sure your business is protected in case of an accident is essential. Although you hope never to use business insurance, you’ll want to have the right policies in place as a small business. One small slip or unexpected storm could leave your business hurting and suffer from financial losses.
The type of insurance you’ll need depends on your specific industry, location, and how you operate your small business. In this guide, we’ll run you through everything you need to know about small business insurance to put your mind at ease so you can go back to concentrating on growing your company.

What is small business insurance?

There is no specific "small business insurance" policy. However, insurance carriers provide encompassing coverage to businesses to protect business property, provide liability coverage, and offer businesses protection from financial losses due to accidents, lawsuits, defamation, natural disasters, and property damage.
While different states and industries have their own rules regarding business insurance requirements, you must understand the insurance options available to you as a small business owner.

13 types of business insurance

There are many types of business insurance coverage that small businesses can purchase. Here are 9 of the most common policies:

General liability insurance

The most important type of coverage a small business needs is general liability insurance. General liability coverage protects your company if a customer, vendor, or visitor is injured on your property or from using your products or services. This includes legal costs.
Not all businesses are required to purchase general liability insurance, but it can help safeguard you from accidents. This type of insurance protects you against financial loss from:
  • Third-party bodily injuries or medical expenses
  • Property damage
  • Libel, slander, and other defensive lawsuits
If you’re in a line of work that receives many visitors or works with heavy-duty equipment — such as a landscaping company — this type of insurance is a must-have for keeping your company finances safe.
Business owners' policy insurance (BOP) is similar to general liability insurance but can protect both liability and some property losses. You might consider this form of insurance if you have a small office space and fewer than 100 employees.

Commercial property insurance

If your business has a brick-and-mortar location, commercial property insurance is highly recommended. That’s because this type of insurance policy will protect your business location against loss or damages.
Most commercial property insurance policies will cover your small business in the event of theft, vandalism, accident damages, and sometimes fire and flood destruction. Not all commercial properties cover natural disasters from weather-related incidents — including floods, hurricanes, earthquakes, and tornadoes — so be sure you understand your coverage options in advance.

Business interruption insurance

This optional insurance policy is designed to protect you in the event of an accident that leaves your business unable to generate revenue for a period of time. This supplemental type of insurance can often be purchased with commercial property insurance and used in the event of an accident.
For instance, if you experience a fire and need to spend several weeks repairing the damages, you may be unable to operate and earn revenue during this repair time. Business interruption insurance protects you against lost income from property damage accidents.

Workers' compensation insurance

If your company has employees, this type of insurance policy is required. Workers' compensation insurance protects your employees if they’re injured on the job. Failure to purchase a workers compensation policy can result in a plethora of fines and — depending on your state laws — criminal charges.
If an employee is hurt at the office or worksite, a workers' compensation policy will help pay their medical bills and a portion of their pay while they’re out from work. It can also protect you, the small business owner, by providing funds for legal fees if you’re sued by an employee who is hurt on the job.
Even if you own a small business with a few employees who work remotely, you may be required to purchase workers' compensation insurance. It’s important to check the guidelines in your state for further requirements.

Unemployment insurance

Another type of insurance policy that’s required if you have even one employee is unemployment insurance. Unemployment insurance offers monetary coverage for employees in the event that they lose their job or are terminated.
You won’t purchase this insurance policy through a private carrier, however. Instead, you’ll fund the cost by paying federal unemployment and state unemployment taxes.

Disability insurance

One of the last forms of employee-protection insurance options is disability insurance. This insurance policy is not required in all states, but five of them — California, Hawaii, New Jersey, New York, and Rhode Island — require businesses to purchase disability insurance.
There are two types of disability insurance — short-term and long-term. Short-term disability insurance covers a portion of an employee’s salary if they’re injured or sick for several months (policies max out between three to six months). Long-term disability lasts longer — it could last the full span of an employee’s illness or up to a specified timeframe in the policy.
While workers' compensation insurance covers employees who are hurt at work, disability insurance covers employees who are injured outside of the workplace or fall ill and cannot work for a time.

Professional liability insurance

This form of insurance is often referred to as malpractice insurance or errors and omissions insurance and is typically associated with doctors and lawyers. Professional liability insurance expands beyond this narrow scope, though. Errors and omissions insurance can protected your company if you miss an important launch date and a client attempts to sue you for damages and loss of profit.
In general, it’s recommended to purchase professional liability insurance if you’re in any professional service field, from a practitioner to a web design company. This form of protection can come in handy if you find yourself stuck in a messy situation with an unhappy client or customer.
There’s also another form of professional liability insurance called “technology errors and omissions insurance” that can help protect technology companies like web development firms, IT companies, software and computer consultants, and other types of computer and internet providers.

Commercial auto insurance

Does your small business operate business-only vehicles for transport, delivery, or general travel needs? If so, then commercial auto insurance should be on your radar. It’s required whenever you use a vehicle — even your personal one — for business purposes. It can also protect any employees operating cars, trucks, or vans intended for company use.
Failing to purchase commercial auto insurance could land you in hot water if you or one of your employees gets into an accident. Personal auto insurance policies do not cover business uses, so any claims you file may be denied without commercial auto insurance.
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Cyber liability insurance

In today’s digital age, we all know even the most secure information can sometimes get leaked. Suppose you work in a profession where you house data or sensitive information for your clients. In that case, cyber liability insurance protects your business in the event of a data breach or leak.
Some cyber insurance policies also help you notify customers about potential breaches, pay for law services required, and offer your customers free data or credit monitoring services on your behalf.

Product liability insurance

If your small business sells products and goods to customers, this type of insurance can be helpful. Product liability insurance is exactly what it sounds like — an insurance policy designed to protect your company if a customer files a legal complaint of injury or damage against you, as a result of buying or using one of your products.

Key person insurance

A key-person insurance policy protects a company if the owner or another top executive member passes away or becomes incapacitated. This policy will provide a payout to the company if a key leader dies or is suddenly physically or mentally unable to continue to lead the company. This payout is designed to help the company survive the loss of such an integral member.
These funds can then be used to hire a replacement, train other prospective leaders, help to weather financial losses, keep employees paid, pay down debts, or in different ways that will help the company stay afloat.

Employment practices liability insurance

This form of insurance is designed to protect your company if a discrimination or wrongful termination lawsuit is brought up against you by a current or former employee. If you don’t have a large HR team or legal members on staff, this type of policy can offer peace of mind and financial protection should a lawsuit arise.

Commercial umbrella insurance

Like other umbrella insurance policies, commercial umbrella insurance can offer an extra layer of protection to bridge the gap if you reach your limit on another business insurance policy. For instance, if you max out your commercial property insurance limit, umbrella insurance could help pay for some (or all) of the remaining expenses you face.

Other types of small business insurance

There are several other more specialized types of business insurance you may want to purchase, depending on your industry, business size, and operational strategy. For instance, if you run a transportation company, inland marine insurance can help protect any towed or transported assets.
Likewise, if your small business has a board of directors or offices, directors & officers insurance (D&O) protects them if employees sue them, investors, or customers. Health insurance is another cost some small business owners will need to invest in, particularly if you have full-time employees.
Be sure to look into the insurance requirements for your industry and state to make sure you have the right policies in place to protect your small business's finances in case of an emergency.

What’s the cost of small business insurance?

How much you’ll pay for small business insurance will vary based on your location, industry, company size, risk level, and other individual factors specific to your business. Your insurance costs will also rise as you add additional insurance policies — though bundling insurance options with the same provider could end up saving you money.
According to Insureon, here are some average costs of insurance by policy type.
  • General liability - $65/month
  • Business owner's policy (BOP) - $99/month
  • Professional liability (E&O) - $97/month
  • Workers' compensation - $111/month
  • Commercial umbrella - $129/month
Prices will also vary across insurance providers. We recommend getting several quotes before deciding on the right policies and providers for your small business.

How to get small business insurance

You’ll obtain small business insurance in a similar way to personal insurance. You can shop online or locally and compare quotes yourself or hire a broker to help negotiate insurance quotes for your company. There are also third-party comparison sites like Insureon and Netquote that you can use to compare quotes and offerings from multiple providers better.
You can typically purchase policies directly online now, making this process quick and easy. Just be sure to check when your policy goes into effect so you know when your coverage begins.

The bottom line

No one ever wants to have to file an insurance claim, but doing so is often better than handling an accident or legal action on your own. As a business owner, getting the right insurance policies in place can protect yourself, your company, and your employees. And, in some instances, these commercial insurance policies are required by law and could lead to a lawsuit and criminal charges if you’re caught without insurance.
Brush up on your state’s insurance requirements for small business owners or talk to a broker, and then begin comparing options until you find the policies that best suit your company’s needs.

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