Small-Business Insurance: What Coverage Do You Need?
Business insurance helps protect your company and its assets in worst-case scenarios, like a fire, data breach or lawsuit.
Every small-business owner faces risks that insurance can help mitigate. But what kind of coverage you need and how much you need depends on what your business does, how large it is and many other factors.
To get the best protection possible, assess potential trouble spots and choose policies that address them well.
What kinds of business insurance are there?
There are many different types of business insurance that protect against particular kinds of risk.
Liability insurance protects your business if it is sued for doing something that causes harm, or failing to do something it should have done and causing harm as a result. Businesses may need several different types of liability insurance, including:
General liability insurance protects your business if a third party or their property is harmed as a result of your business activity. The classic example is a slip-and-fall claim filed by a customer. General liability insurance can also cover repair costs if an employee damages a customer’s property, as well as legal costs if your business is sued for libel or slander.
Professional liability insurance and errors and omissions insurance are similar types of coverage that protect your business if you or an employee make a mistake or give advice that causes harm to a customer. Medical malpractice insurance and legal malpractice insurance are types of professional liability insurance.
Product liability insurance protects your business if a product you manufacture, sell or distribute causes harm.
Cyber liability insurance protects your business in case of a data breach.
Commercial property insurance
Commercial property insurance can pay for repair or replacement of your business’s property, including buildings themselves and the equipment or inventory inside, in case of a surprise loss due to an event like a fire or vandalism.
Business interruption insurance
Business interruption insurance, which is also called business income insurance, can reimburse your business for lost income after a disaster that forces you to pause operations.
These policies can cover rent or mortgage payments, loan payments, payroll, rent for a temporary space and other expenses for a set period of time.
Commercial auto insurance
Most states require businesses to have insurance for vehicles used in the course of doing business, whether or not those vehicles are owned by the company.
Commercial auto insurance policies usually include the same key protections as personal auto insurance policies, like personal injury protection, liability coverage, comprehensive and collision coverage and uninsured motorist coverage.
If you use your personal vehicle for work, make sure to check your personal auto insurance policy to see if your commercial activity is covered.
Workers’ compensation can be paid out if an employee is injured at work. This type of insurance typically covers medical expenses and lost wages. If an employee is killed on the job, workers’ compensation will pay a death benefit to their family.
Workers’ compensation pays out regardless of who was to blame for the employee’s injury. And as long as the employer provides workers’ compensation, the employee can’t sue the employer for negligence after their injury.
Inland marine insurance
Inland marine insurance covers business property while it is in transit or being stored by a third party. Businesses that frequently ship inventory over land, especially valuable inventory, may want to consider this type of coverage.
What business insurance coverage do you need?
Most companies need several different kinds of business insurance, though few need every kind. Follow these steps to figure out what coverage is right for your business.
Find out what coverage is required
Most businesses should have general liability insurance and commercial property insurance to protect their business assets against lawsuits and physical damage. In fact, if your business rents space, your landlord may require both types of coverage.
Beyond that, every state except Texas requires business owners to carry workers’ compensation insurance for their employees. Many states require business owners to purchase it when they hire their first employee, though the rules can vary depending on your industry. Check the regulations in your state to make sure you’re in compliance.
Many states require commercial auto insurance if your business uses vehicles.
There are industry-specific regulations as well. For example, state law might require lawyers to carry legal malpractice insurance, or the state bar association might require attorneys to tell their clients whether or not they have it.
Talk to a professional
If you’re unsure about what kinds of business insurance you need, a licensed commercial insurance broker or agent can help you evaluate your risks and compare various insurance policies.
Establishing a relationship with an insurance broker or agent early on can come in handy as your business grows. When you hire an employee or open a storefront, for example, they’ll already have some knowledge of your business and can help you purchase additional coverage.
Both brokers and agents earn money from commissions. In general, brokers can offer a wider range of insurance products than agents can, though they may charge additional fees. Many states require that agents and brokers disclose fees and commissions upfront.
Consider a business owners policy
General liability insurance and commercial property insurance, and in some cases business income insurance, are often packaged and sold as a business owners policy, or BOP.
BOPs are fairly standardized, and customization options are limited. But you may be able to add certain endorsements. For instance, The Hartford offers data breach coverage as an add-on.
A BOP may provide enough coverage for some small businesses, especially those that don’t have employees and provide products rather than professional services.
Shop for business insurance
Not every insurer offers every type of business insurance. If you need several different policies, you may end up purchasing them from different providers.
Getting quotes from several different insurers can help you find the best insurance for your business at the best price.
To get a quote, you will have to provide some basic information about your business, including your business name, number of employees and ZIP code. Some insurance providers can generate a quote online, particularly for standardized types of coverage like BOPs. But some insurers may require you to call for a quote.
Reassess your risks regularly
As your business hires employees, adds locations or grows its product line, your insurance needs will grow too. Check on your insurance policies every year to make sure they still provide enough coverage.