Whether you own a startup or an established company, you likely need one or more types of business insurance to protect your assets. The most common small business insurance coverages are general liability and commercial property, which insurers often bundle in a business owner’s policy (BOP). BOPs typically cost between $500 to $3,500 per year.
Whatever stage your company is in, the small business insurance experts at The Hartford can help you get the coverage you need. Their online application is easy to use and returns quotes in as little as five minutes.
Types of Business Insurance Policies
|Type of Insurance||What It Covers|
|General Liability Insurance||Third-party claims for bodily harm, property damage, and advertising injury|
|Commercial Property Insurance||Damage to business-owned property, such as building, equipment, and inventory|
|Business Interruption Insurance||Lost income and expenses after operations cease due to a covered event|
|Errors & Omissions (E&O) Insurance||Third-party claims of financial loss due to your negligence or mistakes|
|Workers’ Compensation Insurance||Employees’ medical bills and lost wages resulting from a work-related injury|
|Commercial Auto Insurance||Costs associated with accidents involving vehicles owned or used by your business|
|BOP||Combines general liability and commercial property coverages|
|Cyber Liability Insurance||Costs resulting from cyberattacks and data breaches|
|Inland Marine Insurance||Damage to products, equipment, and goods as they are transported over land|
|Commercial Umbrella Insurance||Extended coverage on other liability insurance policies|
|Employment Practices Liability Insurance (EPLI)||Legal costs in employment-related lawsuits, such as wrongful termination and sexual harassment|
|Directors & Officers (D&O) Insurance||Legal costs for directors or officers sued over managerial decisions|
1. General Liability Insurance
General liability insurance is important coverage for small business owners who work with the public because accidents leading to injuries or property damage present significant risks for them. Also, some businesses that do contracting work, such as construction or landscaping, often need general liability to get a contract or license. Nearly every business needs general liability insurance.
What General Liability Covers
General liability covers third-party bodily injury, property damage, and advertising injury such as defamation and copyright infringement. For example, if a client trips over furniture on your premises, general liability covers their medical bills and your legal fees if they sue. Most general liability also includes coverage for third-party claims of injuries and property damage caused by defective products.
According to Carol Tyrrell, Vice President of Technical Underwriting at ProSight Specialty Insurance:
What Commercial General Liability Doesn’t Cover
Because general liability is third-party coverage, it doesn’t pay for injuries or property damage you, your business, or your employees suffer. It also excludes third-party claims that you or your employees caused someone to lose money by making mistakes or being negligent. Finally, general liability does not cover employees’ on-the-job injuries, accusations of wrongdoing in the employment process, damages resulting from automobile accidents, or claims your officers or directors were negligent in their managerial tasks.
General Liability Costs
Your general liability insurance costs depend on your business’ size, revenue, and industry as well as the coverage limits and the deductible you select. Most general liability policies do not have a deductible, but business owners may opt to include one to lower their premium. Typical general liability insurance costs:
- Annual general liability premium: $400 to $600
- General liability deductible: $0
- General liability limits: $1 million per occurrence/$2 million aggregate
Who Needs Commercial General Liability Insurance?
Businesses that work with the public, including customers, contractors, or vendors, need general liability coverage. This includes almost every small business. Whether you work out of an office, on job sites, or in your own home, general liability is a fundamental type of business insurance.
You can compare top general liability providers based on cost, policy options, and other criteria in our buyer’s guide.
2. Commercial Property Insurance
Commercial property insurance covers the repair or replacement of business property if it’s damaged by outside threats like fire, theft, vandalism, or windstorms. Because business-owned property is not covered by general liability, it’s important to have commercial property insurance to pay for damages to your business’s physical assets.
What Commercial Property Insurance Covers
Commercial property insurance covers your business’s valuable physical assets, paying the insured amount minus your deductible if they’re damaged or destroyed in a covered event.
Some of the essential items covered by commercial property insurance include:
- The building, if owned by your business
- Office equipment
- Fencing and landscaping
- Other people’s property when it’s in your care, custody, and control
Small business owners who rent commercial space can get property coverage for their portion of the building and their business personal property, such as equipment and furniture.
What Commercial Property Insurance Doesn’t Cover
Commercial property insurance typically only covers damage caused by external forces, so it doesn’t pay when equipment burns out or suffers an electrical short. Moreover, it doesn’t necessarily cover every external peril your business might face. When you apply for commercial property insurance, you have to select either an “open-perils” policy or a “named-perils” policy. Open-perils policies cover everything except for specifically stated exclusions. Named-perils policies list exactly which events are covered and exclude everything else.
Some common commercial property insurance exclusions include:
- Earthquakes, floods, and volcanoes
- Commercial vehicles
- Acts of war
Commercial Property Insurance Costs
Typical commercial property insurance cost information:
- Annual commercial property premium: $750 to $1,000
- Commercial property deductible: $500 to $1,000
- Commercial property limits: $5,000 to $300,000
Business property insurance costs vary, depending on several factors, including the value of your property, the location of your business, and the coverage limits and deductible you choose.
Who Needs Commercial Property Insurance?
Small businesses with physical assets need commercial property insurance, especially if those assets are needed for daily operations and are expensive to repair or replace. Property coverage for building where you conduct business is essential. Even business owners who lease space may still need coverage, especially for their business personal property, such as equipment, supplies, and inventory.
Get more information on this important coverage by reading our article on Commercial Property Insurance.
3. Business Interruption Insurance
Business interruption insurance is usually part of commercial property and is used to cover lost income and ongoing expenses when a covered event causes you to cease operations temporarily. Most policies don’t begin coverage until 48 to 72 hours after initial interruption and have a time limit, typically 12 months, for which coverage will be extended.
What Business Interruption Insurance Covers
Business interruption insurance covers your lost income and ongoing operating expenses when damages from a covered event cause you to stop operations. Many policies also pay for temporary relocation costs. Covered events are typically those included in your property policy, such as fire, theft, and windstorm.
What Business Insurance Doesn’t Cover
Business interruption insurance doesn’t cover all the income your business loses when it’s forced to shut down, nor does coverage begin immediately or last indefinitely. Therefore, it’s important to understand the exclusions to get the most of your business income coverage.
Some things business interruption insurance doesn’t cover include:
- Expenses beyond normal operating costs: If your temporary business space costs more than your normal one, business interruption insurance may not cover the extra. However, you can get extra expense coverage to make up the difference.
- Undocumented income: You need to provide evidence of your lost revenue to receive a payout. Documents you can use include historic profit and loss (P&L) statements, tax returns, and business contracts.
- Excluded events: Perils not covered under property insurance, such as floods or earthquakes, aren’t covered by business interruption insurance.
Business Interruption Insurance Costs
Basic business interruption insurance costs information:
- Annual business interruption premium: $750 to $1,200
- Business interruption deductible: Included in property insurance deductible, which ranges between $500 to $1,000
- Business interruption limits: Varies based on property value and whether you add extensions to the duration of business interruption coverage
Keep in mind that business interruption coverage is a provision in your commercial property insurance. For example, the premium ranges listed above is your total cost for commercial property with business interruption coverage.
Who Needs Business Interruption Insurance?
Business owners who have physical locations, such as restaurateurs, retailers, and hair stylists, need business interruption insurance to cover lost income while your business is temporarily closed for repair.
4. Errors & Omissions Insurance
E&O insurance protects professional and service-oriented business owners against liability claims arising from their mistakes or negligence. The types of professionals that most often buy E&O insurance include lawyers, architects, and accountants, but some insurers over this coverage to skilled tradespeople.
What E&O Insurance Covers
E&O insurance is a form of professional liability insurance that covers your legal defense, including settlements and judgments, up to the policy limit if you’re sued by a client for mistakes or negligence. Types of covered errors include incorrect advice, accidental violation of a contract, and misrepresentation.
What E&O Insurance Doesn’t Cover
E&O insurance doesn’t cover intentional or illegal acts, such as a financial advisor giving a client poor advice on purpose. Also, most policies only cover claims of financial loss, not bodily harm or property damage.
Insurers tend to write E&O policies on a “claims-made” basis, which means the policy must be in force both when the triggering event occurs and when you make a claim. As a result, claims may not be covered even if the event that caused them occurred while you had E&O insurance if the claim is made after the policy has ended.
E&O Insurance Costs
Basic E&O insurance costs information:
- Annual E&O insurance premium: $600 to $3,000 per year
- E&O insurance deductible: $500 to $1,000
- E&O insurance limit: $1 million per occurrence/$2 million aggregate
Industry, revenue, and number of employees are just some of the factors that influence the cost of errors and omissions insurance. To get a better idea of the cost you might pay for E&O insurance, discuss your situation with a business insurance broker.
Who Needs E&O Insurance?
Professionals typically need E&O insurance, especially those that provide a service or advice for a fee. These often include lawyers, accountants, financial advisors, architects, engineers, information technology (IT) businesses, and doctors. However, there are errors and omissions policies available for hair stylists, construction businesses, personal trainers, and mechanics.
If you’re looking for E&O insurance, check out our list of the best errors and omissions providers.
5. Workers’ Compensation Insurance
Workers’ compensation insurance provides benefits to employees who have suffered work-related injuries or illnesses and is required in every state except Texas. State law determines when business owners must carry workers’ comp, but some require coverage as soon as you have even one employee.
What Workers’ Compensation Insurance Covers
Workers’ compensation insurance covers medical bills and partial lost wages for employees who become injured or sick as a result of working for your business. Policies may also cover injury or illness that occurs away from your business premises like at a remote location or while traveling to a client site, provided the employee was doing something related to their job.
What Workers’ Compensation Insurance Doesn’t Cover
Workers’ compensation only covers illnesses and injuries that are the result of work tasks, so employees’ claims may be denied if injuries occur while commuting, during social events, or while the employee is intoxicated. Additionally, each state may exempt certain types of workers, such as volunteers and independent contractors.
Workers’ Compensation Insurance Costs
Workers’ compensation insurance costs typically are determined by a formula that considers each employee’s job risk and compensation and your business’s claims history. Every insurer’s formula is different and, as a result, workers’ compensation costs vary widely.
Basic workers’ comp insurance costs include:
- Workers’ comp premiums: 10 cents to $29 per $100 of payroll; businesses with greater risk, such as construction, may pay more
- Workers’ comp deductible: $0
- Workers’ comp limits: Benefits are usually two-thirds of employee wages; maximum payout depends upon the state where your business is located
Since the cost of workers’ compensation varies so broadly, speaking with an insurance professional is the best way to estimate your actual costs for coverage. Read our full review of the top workers’ compensation insurance companies.
Who Needs Workers’ Compensation Insurance?
Workers’ compensation is a legal requirement in almost every state, so many employers need coverage. It may be a good investment even when it’s not mandated by law. Other liability policies don’t cover employee injuries, and the expense of hiring and training new employees may outweigh the cost of getting workers’ comp.
6. Commercial Auto Insurance
Commercial auto insurance protects against claims arising from accidents involving vehicles you use for your business. Coverage starts with liability for physical damage and injuries when you’re at fault, but insurers also offer first-party coverage types, including collision or medical payments. Annual premiums vary widely, but small businesses often pay between $750 to $1,200 per vehicle for commercial auto.
What Commercial Auto Insurance Covers
Commercial auto insurance covers bodily injury and property damage in the event a vehicle you use for business is involved in an auto accident. Small business owners should, at a minimum, carry coverage for third-party bodily injury and property damage for when you or an employee is at fault, but they may also want to add other coverages to their policies.
“If you use your personal vehicle for business—not counting commuting—your personal policy likely will not cover you if you get into an accident, and you’ll have to pay out-of-pocket for damages and injuries. If you use the vehicle primarily for business—driving customers and employees to work sites, hauling tools and equipment, making deliveries, or driving by uninsured drivers—it’s best to get a commercial policy, even though they may be more expensive.”
—Michelle Christian, Mid-Atlantic Regional Administrator, United States Small Business Administration
Some of the coverages you can add to commercial auto insurance include:
- Liability: Covers third-party medical expenses and repair costs, plus your legal fees when you or your insured driver are at fault in an automobile accident
- Collision: Covers damage to your business-owned vehicles
- Comprehensive: Covers damage to your business-owned vehicles caused by events other than a collision, such as falling objects
- Hired/nonowned auto: Covers liability in accidents while driving vehicles you rent, hire, or borrow for your business as well as employees’ vehicles when used for business driving
- Medical payments: Covers medical expenses for you, your insured driver, and your passengers, no matter who is at fault
- Uninsured/underinsured motorist: Covers medical expenses and property damage for you when the owner of the other vehicle is uninsured or underinsured
- Roadside assistance: Covers roadside assistance expenses, such as tows, locksmiths, and flat tires
Be sure to go over the risks associated with your commercial vehicle and discuss them with your insurance provider.
What Commercial Auto Insurance Doesn’t Cover
Small business owners may make the mistake of assuming that any incident involving their vehicle is covered under their commercial auto insurance policy, but there are a few important exclusions to know before implementing the policy.
Common exclusion in commercial auto insurance include:
- Workers’ compensation: Commercial auto insurance doesn’t pay claims when they’re covered under workers’ compensation insurance. For example, an employee’s injuries sustained while operating your company van is typically covered by workers’ comp.
- Care, custody, and control: This exclusion denies coverage for a third party’s property that is in your care, custody, and control. For example, your commercial auto policy doesn’t pay if you’re in possession of someone else’s vehicle and damaged it.
- Fellow employee injuries: Claims made by one of your employees against another employee are excluded from commercial auto insurance.
There may be other exclusions in your policy, which should be discussed thoroughly with your insurance provider before coverage begins.
Commercial Auto Insurance Costs
Typical commercial auto insurance costs:
- Annual commercial auto insurance premium: $750 to $1,200 per year per vehicle; $2,000 or more for semi-trucks
- Commercial auto insurance deductible: $0 to $500 on each coverage type
- Commercial auto insurance limits: $1,000,000 per occurrence/$1,000,000 aggregate
Most small business owners insure one car, which is why premiums typically cost less than $1,200 per year. Truck drivers may pay around $2,000 to $12,000 if they are owner/operators.
Who Needs Commercial Auto Insurance?
Any small business owner who uses vehicles for business purposes other than commuting needs commercial auto insurance coverage. This includes owners who have business-owned cars as well as those who ask employees to drive their personal vehicles for work errands. Moreover, business owners shouldn’t assume their personal auto coverage extends to their commercial vehicle.
7. Business Owner’s Policy
A BOP is a package of several fundamental coverages bundled together in a cost-efficient insurance plan. BOPs typically include general liability, commercial property, and business interruption insurance, but many insurers add other industry-specific coverages.
What a BOP Covers
The standard coverage included in a BOP are commercial general liability, commercial property insurance, and business interruption insurance. These three coverages protect business owners against some of the most common risks they face, namely third-party lawsuits, first-party property damage, and lost income after a catastrophe. In addition to these, some insurers include other coverages.
Additional coverage that is commonly added to a BOP include:
- E&O insurance
- Cyber liability insurance
- D&O insurance
- Inland marine insurance
Insurers add options specific to the industry they are selling to. For example, contractors, photographers, and landscapers often need to travel to worksites with their equipment, which makes inland marine an essential coverage.
What a BOP Doesn’t Cover
Unless the insurer adds coverages, most BOPs do not pay for allegations of negligence, costs associated with cyberattacks or data breaches, employment-related issues, or business-owned property when it’s in transit. Additionally, the property portion of a BOP may cover theft, but it excludes theft committed by an employee.
Typical BOP insurance costs:
- Annual BOP premium: $350 to $3,000
- BOP insurance deductible: $500 to $1,000
- BOP insurance limit: $1 million per occurrence/$2 million aggregate for liability, $5,000 to $10,000 for property
The factors that go into determining your BOP cost are the same as the ones the determine your property and general liability premiums, such as your business’s size, revenue, number of employees, and location as well as the value of any business-owned property.
Who Needs a BOP?
BOPs were designed as an affordable way for small business owners to get fundamental insurance coverage. Most owners should at least consider getting a BOP, especially if they have customers and property.
8. Cyber Liability Insurance
Cyber liability insurance helps businesses recover from damages caused by cyberattacks. Policies can provide first-party coverage for when your network is hacked and third-party coverage for when clients and customers sue you for allowing their data to be exposed.
What Cyber Liability Insurance Covers
First-party cyber policies cover costs when a cyberattack exposes your customers’ personally identifiable information (PII), such as names, addresses, and credit card numbers. These costs may include client notification, credit monitoring for impacted customers, and system updates. Third-party policies cover costs when clients claim you’re responsible for an attack on their network, paying expenses like your legal fees, civil awards, and settlements.
What Cyber Liability Insurance Doesn’t Cover
Cyber liability insurance typically excludes coverage for patent, software, and copyright infringement. First-party claims may also be denied of you failed to take appropriate safety measures to protect your data or if data is exposed because an employee lost a company-issued device.
Cyber Liability Insurance Costs
Typical cyber liability costs for most small businesses:
- Annual cyber liability premium: $1,000 to $7,500
- Cyber liability deductible: $500 to $2,500
- Cyber liability limit: $1 million
There are several factors that contribute to the cost of cyber liability insurance, including the number of personal records you keep for customer information, annual revenue, and business type. Bundling cyber liability into a BOP can help reduce costs.
Who Needs Cyber Liability Insurance?
With cybercrimes making headlines in recent years, you may think that cyber liability insurance is needed only by large retailers that store hundreds of thousands of customer credit card numbers. However, smaller firms are more often targeted by hackers because they are usually more vulnerable. If you take credit card payments or store any of your customers’ confidential information, you have an exposure. Examples of business types that may need cyber liability insurance include certified public accountants (CPAs), retailers, information technology (IT) firms, and healthcare providers.
9. Inland Marine Insurance
Inland marine insurance is a type of property insurance that a business needs to protect property when it’s in transit or at a location other than the business’s primary premises. For example, businesses that move their equipment to worksites or transport cargo for a third party need inland marine insurance.
What Inland Marine Insurance Covers
Inland marine insurance covers products, equipment, and materials while they are being transported over land or store in an off-site warehouse or storage facility. The insured property may be owned by the business or a third party, such as a client. Policies also cover your property when it’s stored in an off-site facility and other people’s property when it is temporarily in your care.
Inland marine policies are also appropriate for high value and specialty equipment, such as:
- Communications and networking equipment
- Construction and contracting equipment
- Medical and scientific equipment
- Photography equipment
What Inland Marine Insurance Does Not Cover
Inland marine insurance does not cover the actual vehicle used to transport your property or anything physically attached to the vehicle. For example, if your commercial vehicle and the equipment being transported are both damaged in an accident, inland marine only covers the damaged equipment.
Inland Marine Insurance Costs
Typical inland marine costs for most small businesses:
- Annual inland marine premium: $300 to $3,500
- Inland marine deductible: $500 to $2,500
- Inland marine limit: $5,000 to $15,000
Who Needs Inland Marine Insurance?
Businesses that frequently ship products or equipment should consider inland marine insurance coverage. Inland marine is especially important if your business relies on equipment that needs to be transported to various worksites or stored anywhere other than the address listed on your commercial property policy. Examples of businesses that may need inland marine insurance include contractors and mobile food vendors.
10. Umbrella Insurance
Commercial umbrella insurance is used to extend coverage on other liability coverage, such as general liability, in the event claims exceed the underlying policy limits. Umbrella policies are usually a more cost-effective way to get additional coverage than increasing the limits of your other liability policies.
What Umbrella Liability Insurance Covers
Commercial umbrella insurance is secondary coverage that lays on top of multiple underlying liability policies. If a claim exceeds the limits of one of the underlying policies, umbrella insurance makes up the difference. For example, say your general liability limit is $1 million, but you’re sued by an injured customer for $1.2 million. With an umbrella policy, the extra $200,000 is covered.
What Umbrella Liability Insurance Doesn’t Cover
Commercial umbrella insurance only covers liability claims when they are covered by the underlying policy. If something is excluded from your general liability policy, your umbrella policy doesn’t cover it either. Additionally, umbrella insurance only extends limits for certain types of liability insurance, most commonly general liability, commercial auto, and workers’ compensation.
Umbrella Liability Insurance Costs
Typical commercial umbrella insurance costs:
- Annual commercial umbrella premium: $200 to $1,500
- Commercial umbrella deductible: $1,000 to $10,000
- Commercial umbrella limit: $1 million
Umbrella policies are typically sold in $1 million increments, so adding it is often less expensive than increasing policy limits on all your other liability insurance.
Who Needs Umbrella Liability Insurance?
Umbrella insurance is a good idea for small business owners who either have extensive liability exposures, like those who have work with hazardous materials or who have commercial vehicles. Additionally, business owners often get umbrella policies to satisfy contractual obligations. Commercial landlords who require $1 million in general liability coverage typically find the added coverage of an umbrella policy acceptable.
11. Employment Practices Liability Insurance
EPLI pays business owners’ legal defense when they are accused of employment-related wrongdoing, such as sexual harassment, discrimination, and wrongful termination. Policies usually pay lawyers’ fees, investigators’ fees, settlements, and civil awards.
What EPLI Covers
EPLI typically cover the legal defense costs arising from lawsuits related to employment issues, up to the policy limits of the policy. These claims stem from any part of the employment process and may be brought by current and former employees as well as job candidates. Business owners should also note that coverage extends only to financial damage and not to other liability claims, such as bodily injury.
According to Jay Starkman, CEO of Engage PEO:
“The rise in visibility of employment-related claims, such as sexual harassment and discrimination, should cause all small businesses to consider an EPLI policy as well as obtaining professional help in the HR [human resources] arena.”
Some examples of employment-related claims covered by EPLI include:
- Wrongful termination: A former employee accuses you of terminating them without proper warning
- Discrimination: A job candidate claims you did not hire them because of their sex, race, age, or disability
- Sexual harassment: An employee claims you made unwanted sexual advances
- Defamation: A job candidate claims you issued a false statement intended to harm their reputation
- Invasion of Privacy: An employee alleges that an employer unreasonably searches their private space
EPLI policies can cover you and your managers, directors, officers, and employees.
What EPLI Does Not Cover
EPLI policies do not cover claims regarding bodily injury or property damage. Like all insurance policies, EPLIs do not cover criminal or intentional acts. Some insurers also limit coverage during mergers, acquisitions, or major layoffs.
EPLI Insurance Costs
Typical employment practices liability insurance costs:
- Annual EPLI premium: $800 to $5,000
- EPLI deductible: $1,500 to $3,000
- EPLI limit: $500,000 per occurrence/$1 million aggregate
Factors influencing your actual EPLI costs include the number of employees you have, the size of your business, claims history, and any policies you follow for hiring and firing employees.
Who Needs EPLI?
Any business that has multiple employees should consider buying employment practices liability insurance. While EPLI is more commonly purchased by large corporations, small businesses tend to be more vulnerable to EPLI claims because they typically don’t have a legal department or an employee handbook guiding their employment practices.
12. Directors & Officers Insurance
D&O insurance is a type of liability insurance that pays defense costs in the event a board member or company officer is sued for their managerial decisions. Depending on the type of claims, these accusations may come from employees, job candidates, or competitors.
What D&O Insurance Covers
D&O insurance pays defense costs, court-ordered judgments, and settlement payments if directors or officers of your company are sued for wrongful acts. Policies typically cover accusations stemming from managerial decisions and may include accusation of wrongful termination, harassment, and mismanagement of employee benefits.
What D&O Insurance Doesn’t Cover
D&O insurance does not cover intentional or illegal acts. For example, some of the primary exclusions in D&O insurance are fraud, personal profiting, and pending and prior litigation. Other exclusions include claims that would fall under a general liability policy, such as third-party bodily injury and property damage.
D&O Insurance Costs
Typical D&O insurance rates:
- D&O insurance premium: $2,500 to $10,000
- D&O insurance deductible: $0 to $10,000; can be waived, or a business may choose deductible to decrease the premium
- D&O Insurance limits: $2 million per occurrence/$3 million aggregate
D&O insurance costs vary and are based on several factors, including business size, industry type, deductible amount, and policy limits.
Who Needs D&O Insurance?
Businesses with a board of directors typically need D&O insurance. In fact, getting D&O insurance is often a way to attract quality board members and executives who may otherwise face personal liabilities when they join your board. D&O insurance is used by both for-profit businesses and nonprofit organizations.
Other Insurance Products Businesses May Need
When insurance professionals talk about small business insurance, they’re mainly focused on commercial lines like the ones we’ve listed above. However, other types of business insurance may be appropriate for your operations.
Two alternatives types of business insurance include key employee (key man) insurance and surety bonds.
Key Employee Insurance
Key man insurance is life and disability insurance for employees important to your business’s financial success. Examples of key employees include business owners and founders. If the covered person dies or becomes disabled while the policy is in force, the business receives the payout.
What Key Man Insurance Covers
Key man insurance covers financial damage to a business when a key employee dies or becomes disabled. The coverage is often a term life insurance policy purchased by the business. Business owners typically select terms between 10 and 20 years so that the policy remains in force during the years the key person is employed with the business.
What Key Man Insurance Doesn’t Cover
Key employee policies typically have a two-year period known as the contestability period. Any claim made during the contestability period is investigated for fraud and misrepresentation and, if your insurer discovers misinformation on your application, it can deny your claim. The contestability period also has a provision that allows your insurer to deny claims if the insured commits suicide.
Key Man Insurance Costs
Typical key man insurance costs:
- $100,000 key man policy premium: $99 to $130
- $500,000 key man policy premium: $255 to $410
- $1 million key man policy premium: $390 to $705
The above key man premium ranges are for term life policies of 10 to 20 years for a 40-year-old, nonsmoking male. Females are generally priced lower than males, whereas older individuals typically pay higher premiums. If you use whole life insurance for the policy, premium costs are typically five to 10 times higher than term life.
Who Needs Key Man Insurance?
Businesses that rely on a few key people, such as an owner or the top executives, may want key employee coverage to ensure the financial success of the business. This coverage is not just for large businesses. Small businesses are often more dependent on one or two key people for their success.
A surety bond is a contract between three parties known as the principal, surety, and obligee. The bond ensures that the principal, usually the business owner, will live up to the financial obligations of the contract they have with the obligee, often a state government hiring the business owner to perform certain services. The surety is the bond company that issues the bond, and provides the financial guarantee.
What Surety Bonds Cover
Surety bonds don’t so much cover events as they guarantee your work. Essentially, the bond issuer is saying they’ve found you to be a credible, trustworthy business owner. However, different types of bonds do guarantee different sorts of results.
Three different types of surety bonds include
- Contract bonds: Ensure the principal will complete the agreed upon work and pay for materials and subcontractors
- Commercial bonds: Guarantees the principal is and will remain in compliance with state requirements
- Fidelity bonds: Protects businesses from loss caused by the employee who handles cash, securities, and other valuable assets
What Surety Bonds Don’t Cover
Surety bonds aren’t insurance policies, so they don’t cover things like third-party bodily injury and property damage, accusations of professional negligence, costs associated with a cyberattack, automobile accident, or employment-related issues.
Surety Bond Costs
Surety bond costs vary depending on the financial status of the applicant, the type of bond and the coverage amount. For example, a contractor with a poor credit rating will likely pay more for a surety bond than one with a good credit rating. Bond rates typically range between 1% to 3% of the total amount the bond is issued for. Surety bonds for most small business contractors cost $100 to $300 per year for up to $100,000 in coverage.
Who Needs Surety Bonds?
State law requires bonds for certain licenses, including most contractors’ licenses and liquor licenses. In addition to meeting state requirements, being bonded can help attract larger contracts because it demonstrates your credibility. Examples of businesses that may need a surety bond include builders, janitors, landscapers, and freight brokers.
Tips on Applying for Small Business Insurance
While business owners want affordable business insurance, they also need sufficient coverage. Otherwise, they may find themselves paying for claims despite having policies in place. Weighing all the factors that go into getting the right insurance usually means getting assistance from a professional who can help you compare offers.
Below are three tips for getting insurance for your small business.
1. Find an Agent You Can Trust
While getting the right coverage is essential to your success, that process starts with your insurance agent. A good agent partners with you to make sure your business is protected, so it makes sense to look into them.
“Picking the right agent is just as important as picking the right insurance. Your agent will help you understand the differences between policies and give you professional advice on what you should choose. They should be open and comfortable answering any questions you might have. They should also be knowledgeable about the specific risks associated with your business. Ultimately, finding the right coverage involves time and research, but you shouldn’t have to do this by yourself.”
—Adele Alligood, Insurance Agent, Endthrive.com
2. Tap Into Your Network
Justin Strong, the owner of The Justin Strong Agency, LLC, says one way to find a small business insurance agent is to look in your network.
“Start by reaching out to the agent who handles your personal insurance. See if they offer products that will fit the needs of your business. If not, see if they have a relationship with an agent that does. If neither of these options work, then I would start researching agents to see if they have Google reviews and what other people are saying. Lastly, I would ask other small business owners who they use for their insurance.”
3. Compare Multiple Quotes
Every insurance carrier has its own method of determining costs, so the rate you get from one may be significantly different from another. This makes comparison shopping critical to getting the right coverage for your unique operations.
“The best way to find the appropriate and most affordable coverage for your small business is through an independent agent. These are agents that represent numerous companies, not just one like State Farm, Allstate, and so on, who typically have a lot of experience dealing with business accounts and will have companies that tend to specialize in small businesses instead of a one-size-fits-all approach.”
—Jeffrey Zander, CEO, Zander Insurance
Every small business owner needs at least some form of insurance coverage because expensive claims can cause severe financial damage or even bankrupt a small business. Protect what you’ve earned and ensure the future success of your business with the right type of business insurance.
The folks at The Hartford make protecting your business a breeze. Its team of small business insurance specialists will work with you to make sure your business is covered properly. Get started today by filling out a short online questionnaire to see quotes in less than five minutes.