Small Business Insurance: What You Need To Know

Just like insurance policies for your car and home protect your personal assets, business insurance safeguards your business and its assets. Insurance for businesses comprises several policies designed to cover various aspects of your business, including general liability, property coverage, injury and income loss.

In this guide:

• What Is Small Business Insurance?
• Why Does a Business Need Insurance?
• How to Choose Small Business Insurance
• Cost of Business Insurance
• How to Buy Insurance for Your Business

What Is Small Business Insurance?

Small business insurance refers to a variety of insurance coverage you can purchase to cover your business in case of damage to your property, lawsuits, professional errors, workers compensation claims, and much more.

What Insurance Do I Need For My Small Business?

Your business could require several types of insurance, depending on what you do and how you operate. What types of business insurances should you consider? Here are some common options for small business owners:

• General liability insurance: Small businesses need to make sure they have general liability insurance as the minimum coverage for their business. This type of policy covers your business in case of liability with the public, such as injury, copyright violations and lawsuits.
• Commercial property insurance: Sometimes referred to as business property insurance, this covers damage to business property and buildings you own, including furniture and office equipment, against events like catastrophic weather, theft, fire or vandalism.
• Business owners policy: A business owners policy (often referred to as a BOP) often covers your business insurance needs and typically includes general liability and property insurance, and may include workers’ compensation, professional liability and business interruption insurance. It could be a good starting point if you run a very small or home-based business.
• Workers’ compensation: Small business owners who have employees are typically required tp purchase this coverage (in all but states but Texas). It provides health benefits to workers in case of a work-related injury and covers costs associated with related lawsuits.
• Commercial auto insurance: This covers physical damage or theft of company vehicles.
• Product liability insurance: If you manufacture or sell a product, this policy can cover lawsuits due to bodily injury or property damage sustained through using the product.
• Professional liability insurance: Also referred to as errors and omissions insurance, this policy is useful for firms that provide a service based on professional expertise, such as lawyers, accountants, medical professionals, real estate agents or salon owners. Professional liability covers claims of negligence or improperly applying professional skills.
• Commercial umbrella insurance: An umbrella policy is extra liability coverage to cover costs that exceed your coverage under other liability policies.

If you operate a business with unique risks, you may require specially designed insurance policies, such as nuclear, ocean marine, nursing home or political risk insurance.

What Does Small Business Insurance Cover?

Each type of commercial insurance policy covers a different area of your business, such as public liability, property loss, employee injury or vehicle damage. Many policies are designed to protect your business by covering potential costs associated with lawsuits for injury or damage determined to be caused by:

• Being on your property
• Using your product
• Improper application of your professional expertise
• Performing work for your business

 Additional coverage protect your business from losses associated with:

• Catastrophic weather, such as tornadoes or hurricanes
• Fire
• Vehicle damage
• Theft
• Vandalism
• Business closure mandated by civil authorities

Your actual business insurance coverage depends on the terms of your policies. Work with your insurance provider or broker, and read the policies carefully to understand what each policy does and does not cover.

Why Does a Small Business Need Insurance?

Small business owners should purchase business insurance to protect against losses associated with unexpected events, such as property damage due to weather, theft of products or equipment, injury or lawsuits. Without insurance for business, you would be responsible for costs that arise. Depending on your cash flow, these costs could be debilitating for the business.

How to Choose Small Business Insurance

What type of coverage your business needs depends on several factors, including what kind of business you perform, how you operate and where you’re located.Your business doesn’t need every type of policy, but it likely needs more than one to cover multiple areas of liability and the properties your business owns. Every business owner should invest in general liability insurance to protect against financial harm in case a customer, client or member of the public sues you for damage or injury. You may need additional policies if:

• You own a building or other property, such as furniture and office equipment.
• Operate a business out of your home.
• You use a vehicle or watercraft for commercial purposes.
• You have employees.
• You operate in an area at risk of tornadoes, hurricanes, flooding, fire or theft.
• You provide a professional service based on expertise.
• You manufacture or sell a product.
• You don’t have cash reserves to weather temporary business closure.
• You operate in a particular industry, such as nuclear, finance, farming or medicine.

Speaking with an insurance agent about your business is the best way to understand which areas of coverage you need to protect your business.

Small Business Insurance Cost

How much you’ll pay for insurance coverage for a business depends on the type of policies you need as well as aspects of your business that determine your level of risk, such as:

• Type of business and how you operate
• Geographic location
• Value of your property
• Whether you’ve made previous claims
• How much coverage you need

Purchasing a package like a business owner’s policy can simplify the process and help you save money by bundling several policies together. 

The cost varies widely depending on what coverage you choose to include. The typical cost of a business owners policy ranges from $500 to $3,500 per year, according to HowMuch.net, and averages $1,200.

HowMuch.net offers these average annual costs for $1 million in coverage for specific types of business insurance:

• General liability coverage: $500 to $600.
• Commercial property insurance: $1,000 to $3,000.
• Commercial auto: $750 to $1,200 with a $500 deductible.
• Workers’ compensation: Rates regulated by state, per $100 of payroll.

Get Small Business Insurance Quotes

The first step to buying small business insurance is to assess your business’ needs. Consider the factors above to determine which risks of financial harm your business faces. Once you know which types of policies you need, shop around to find the best coverage at the best rates.

Our insurance specialists understand that all small businesses are different, and we can help you understand your insurance coverage options and translate your needs into a cheap and affordable policy. To get a competitive business insurance quote complete the form above to hear from one of our specialists.

Reviewed By: Sarah Reid, Licensed Agent