Business insurance is a form of protection small business owners can buy to safeguard their personal or business assets. Getting the appropriate coverage for your operations protects your assets by covering customer lawsuits, property damage, and other perils so that the costs that follow a disaster don’t put you out of business.
What Business Insurance Is
Business insurance is a way to protect your assets from risks you face every day as part of your business operations. Most businesses deal with third parties who may claim your business caused their property damage, bodily harm, or financial loss. Different types of business insurance covers these accusations by paying the associated costs.
Who Needs Small Business Insurance
Any small business owner who wants to protect assets and increase their chances of surviving a catastrophe needs business insurance. Without coverage, the money for repairs, medical bills, and legal fees would be out of their pockets. Small business owners may even be required to carry insurance as a condition of financing for buildings, equipment, or inventory.
Small business owners need insurance even when they are freelancers, work out of their homes, or sell products or services via online platforms. These practices are still businesses, and home insurance policies do not typically cover them. Insurance is also a smart investment for owners looking to sign new clients. Many larger companies only work with owners who have business insurance because it shows they are financially stable.
Common Types of Small Business Insurance Policies
Certain small business insurance policies are considered fundamental because they protect against risks that most business owners face. General liability is a good example of this because it covers claims that your business is responsible for someone else’s damages. Many business owners also get commercial property insurance because it pays for damages to their property.
| Type of Insurance | What It Covers |
|---|---|
| General liability insurance | Non-employee claims of bodily injury, property damage, and reputational harm. |
| Commercial property insurance | Damage to business-owned property, including buildings and their contents. |
| Business owner’s policy | Combines commercial general liability and property coverages. |
| Professional liability insurance | Clients’ accusations of financial losses due to your negligence, mistakes, or omissions. |
| Commercial auto insurance | Costs associated with accidents involving vehicles owned or used by your business. |
| Workers’ compensation insurance | Employees’ medical bills and lost wages resulting from a work-related injury. |
Some of fundamental business insurance policies include:
General Liability Insurance
General liability insurance covers the costs associated with third-party claims of physical injuries, damaged property, and reputational harm, such as defamation and copyright infringement. For business owners, third parties are essentially anyone who doesn’t work for you. If a non-employee claims your business caused their damage, then general liability covers costs like repairs, medical bills, or your legal costs if the injured party sues.
Most small business owners can find general liability insurance that costs between $400 and $600 per year. Businesses that see more foot traffic or have employees often pay more because they face a greater risk of third-party lawsuits.
General liability covers some of the most common risks business owners face, so it’s important to find quality coverage. Start with a general liability insurance company that knows your industry and can accurately evaluate your risks.
Commercial Property Insurance
Commercial property insurance is protection for your business’ physical assets, including its facilities and their contents, such as office equipment, furniture, and fixtures. If these are damaged in a covered event, like a fire or burglary, then commercial property pays up to the insured amount minus your deductible.
Commercial property premiums typically start around $750 per year for small business owners, but this depends on the amount and value of the property your business owns. You need sufficient coverage to repair and replace items if they are damaged, and that means increased costs. Insurers also consider your building structure and location as well as any security or sprinkler systems you have.
Business Owner’s Policy
A business owner’s policy, or BOP, is a policy bundle designed specifically for small businesses. It combines general liability and commercial property insurance into a single product. Most BOPs also include business interruption coverage to pay for lost profits and ongoing expenses if a covered event causes you to pause operations. Some insurers also include other key coverages based on industry need.
Because BOPs bundle policies, insurers can offer them at a rate lower than what they might cost individuals. Many businesses can find BOPs for between $350 and $3,000 annually, depending on the amount of coverage and whether additional policies are added in.
Professional Liability Insurance
Professional liability insurance, also called errors and omissions, covers clients’ claims that they experienced financial losses due to your services. Policies typically pay for your legal defense plus settlements or court awards if a client says you made work mistakes, failed to deliver promised services, offered inaccurate advice, or were otherwise negligent in your performance. Professional liability is typically a policy included in accountant’s insurance and architect’s insurance because it’s designed for professionals who have advanced certifications.
Business owners who need professional liability typically pay between $400 and $1,000 per year. This price is largely dependent upon industry, with architects and engineers often paying higher premiums. However, insurers also look at business size, location, and risk management practices when determining premium.
Commercial Auto Insurance
Commercial auto insurance protects businesses that use vehicles in the course of their operations. Policies usually start with liability coverage for damages you or your insured drivers cause others, but can also include additional coverage for other events. For instance, business owners may want coverage for damage to their business-owned vehicles; damage to vehicles they rent, hire, or borrow; or medical expenses regardless of who is at fault.
Business owners generally pay between $750 and $1,200 for commercial auto. However, premiums are largely based on location because many states have minimum liability requirements. Business owners also pay more if they opt for additional coverages, such as collision or hired and non-owned auto coverage.
Workers’ Compensation Insurance
Workers’ compensation insurance pays for employees’ medical bills and lost wages if they suffer a work-related illness or injury. Some policies also include coverage for your legal defense if an employee claims their injuries are the result of your negligence. Every state except Texas requires business owners to carry workers’ comp, sometimes as soon as they have one employee. Policies can usually be purchased from workers’ compensation insurance companies, but some states require business owners use a state fund.
Workers’ comp premiums vary greatly. Small business owners typically pay anywhere from $500 to several thousand dollars, based largely on the number of employees and the types of risks those employees face in their work. State law governs workers’ comp, so location also plays a role in your overall costs.
How to Get Business Insurance
Small business owners can get business insurance online through brokers or directly from carriers. In order to get the appropriate coverage for your business, it’s important to first assess your risks and then to find providers who offer coverage that protects against them.
How to Pick a Business Insurance Carrier
Once you know your risks, you can start looking for a small business insurance company that has the policies you need. Most carriers specialize in certain industries, so you may want to check out online reviews or ask other business owners who they work with. Additionally, carriers receive ratings from third party rating companies like A.M. Best and Moody’s for their financial strength so ratings of A or better indicate the carrier is prepared to pay claims.
If you think an insurance carrier is the best option for your business but don’t know which carrier to use, take the quiz below. It will offer you a customized recommendation based on the responses you give.
Which Insurance Carrier is Right for You?
How to Pick a Business Insurance Broker
Some people like to work with small business insurance brokers so they can evaluate rates from multiple carriers. If you choose to work with a broker, you want to look for one that either works with carriers you’ve already identified or that only workers with carriers that have an A-rating or better from rating agencies. You may also want to note if the broker provides information about additional fees.
Tips on Getting Business Insurance
Getting small business insurance is an important part of protecting your business and personal assets, but the process can be overwhelming for people who don’t work in insurance every day. These tips can help make it easier to apply for and find the appropriate business insurance for your individual circumstances.
Compile the Documents & Information Needed to Buy Business Insurance
Small business insurance carriers use details about your business to determine if they want to offer you coverage and how much they will charge for it. Providing them with accurate information helps you get accurate quotes, so it’s a good idea to gather documents before your apply. Moreover, inaccurate information may mean your insurer can deny claims should you ever file one.
Some of the information you may need when you apply for business insurance includes:
- Business location, including address, age, materials, and square footage
- Business name
- Inception date
- Business structure
- Number of employees
- Total payroll
- Compensation for your owners and officers
- Revenue for the past 12 months
- Estimated revenue for next 12 months
- Revenue earned from largest client
- Details about business operations
- Years of industry experience
- Professional certificates
- Business-owned vehicle information
- Value of business-owned property
- Claims history
Compare Multiple Offers Before Buying Business Insurance
Every insurer has its own formula for determining premiums. Some put more weight on your industry while others are more concerned with your claims history, revenue, or business size. As a result, it’s a good idea to compare costs and coverage details from more than one insurer. An easy way to do this is to work with an independent agent or broker who has access to and can submit your information to many carriers.
Work With an Experienced Business Insurance Agent
A number of insurance agents specialize in specific industries, which means they usually have a better understanding of what risks businesses in the industry face and can access specialized carriers. This makes it easier for agents to evaluate exposures and find appropriate coverage at an affordable price.
Bottom Line
No matter what type of business you own, your operations come with risk. One way many owners guard against that is by getting business insurance. The policies they buy protect their businesses from disaster by covering customer lawsuits, property damage, and other perils so that the ensuing costs don’t put them out of business.
Syed HAMID Hussaini
Very informative article on basics of insurance for every SB owners. As a CEO every year I go through hard time for renewal with tons of questions. I wonder do we have software like TurboTax to make SB owners life easier?
Kimberlee Leonard
Hi Syed,
Thank you for taking the time to post your question. It’s a great idea, though I am not aware of anything that will consolidate all coverages into one place. What I would recommend is talking to your insurance broker to compile an excel spreadsheet that lists the policy type, main coverages lines with total limits, deductibles, and premium. If you copied that sheet from year to year, you’d be able to confirm what is changing and where. It would also help you shop policies with the actual data. Great brokers will do this for you.
Feel free to see our guide on brokers: https://fitsmallbusiness.com/best-business-insurance-brokers/
Let me know if there are any other questions you may have.
Stacia Stanley
Your article about explaining Business Insurance is exceptionally outstanding. I also started my business recently and need an insurance company, then I found Cubit Insurance. Their services are amazing but I confused for some points but this article clears my all confusion. Thank you so much for your effort.
Geoffrey A. Gordon, CFP®, CIC, CRM
Excellent overview of different types of commercial insurance at http://www.agordon.com. Agreed that structuring a customized risk program that meets the unique needs of the business is critical. We work with businesses throughout eastern Massachusetts, and appreciate great content like this.
Michael Rosenthal
Great article, David. It does my heart good to see others so deeply committed to providing information and resources to the SMB owners and leaders out there, the driving force and most integral piece of our economy.
As a writer and “marketeer” for Newtek, The Small Business Authority, I spend a lot of time working with our Insurance Division (Newtekinsurance.com) who is licensed in all 50 states, provides both personal and commercial policies, and works with all of the top providers (yes they get preferred rates;) – and all of the great smaller/niche companies, too.
Beyond shameless self-promotion, I wanted to add some thoughts about “breach insurance,” to your comprehensive article. As cyber crime escalates to epidemic proportions, most SMBs (literally ALL of them who use computers) can be targeted and victimized. They can be hacked and fleeced of all their personal/proprietary information – and what’s worse, that of their CUSTOMERS as well.
It may come as a shock to find out that general liability policies DO NOT COVER cyber crime. No. They. Do. Not.
So, with that in mind, one might be somewhat less surprised to discover that 60 percent of all SMBs victimized by cyber crime shut down within one year. With no coverage, there is no way to survive the lawsuits, the bad publicity, and really just the sea of costs needed to right the ship.
The answer?
Breach insurance, of course, is your ace in the hole. And with top statisticians claiming that being victimized through your network is no longer a question of “if” but “when” over the next few years, this is something really worth your time and attention.
Aside from following IT security best practices (none of which are foolproof, Apple Computers and Target were even hacked) the value of cyber/breach insurance is on the rise.
Should you have any questions about cyber insurance, IT security best practices, or anything else in the world of ‘small business services,’ please feel free to reach out to me at mrosenthal@thesba.com. Don’t forget to mention that it was a Fit Small Business article that led you to me … they are a great Organization.
David Waring
Thanks for the comment Michael. Interesting point about cyber crime will investigate a bit more and look at updating the guide.
Best Regards,
Dave