Starting your own business requires a significant investment of both time and money. Millions of people continue to take on the challenge with 33 million active small businesses in the US as of 2023. However, without a proper business insurance plan, you risk losing everything you worked so hard to build.
According to a survey published by Next Insurance, 90% of business owners were unsure if they had adequate coverage. Worse yet, 29% did not have any business insurance coverage, leaving their businesses and investments vulnerable to natural disasters, theft or lawsuits.
Small business insurance provides critical protection for your business, but there are several different types of coverage. Understanding the options available and what to expect in terms of costs can help you find the right coverage for your business (and your budget).
7 Common Types of Small Business Insurance
A customer visits your store and slips and breaks his arm while walking through the aisles of the store.
A fire breaks out and spreads to your warehouse, destroying your inventory.
Or a thief breaks into the office and steals your laptop.
Whatever the case, there are many unexpected and frightening scenarios that can threaten your business.
Just like your personal auto or homeowners insurance policy, small business insurance acts as a safety net for your business, protecting your business property and assets against common disasters or accidents.
Whether you are the only employee at your own company or have dozens of workers, your small business likely needs some type of protection. The type of insurance your business needs depends on the type of work you do, the size of your operation, and your location. Here are some of the most common business insurance options:
Business Owners Policies (BOP)
A BOP is actually an insurance package that combines several forms of coverage, making it a simple option for small business owners. BOPs typically include general liability, property insurance, and business interruption insurance.
BOPs are typically more cost-effective than purchasing each type of coverage separately, and you can customize your BOP with optional add-ons, such as cyber risk insurance or commercial auto coverage.
Overall responsibility
General liability insurance protects you against financial losses that may result from bodily injury or property damage that occurs due to your business. For example, if a customer is injured on the premises of your business, general liability coverage would help cover your legal bills, the injured person’s medical bills, and any damages resulting from a lawsuit.
Product liability
If you make or sell products, product liability coverage protects you against losses resulting from the products you make, distribute, or sell. For example, if a customer needs medical care after being injured by a product you made, product liability insurance would help with legal and medical expenses.
Professional responsibility
Professional liability insurance covers your legal expenses and damages related to problems that result from your negligence or professional errors.
Commercial property
If your business property, equipment, or inventory is damaged by a storm, fire, or theft, commercial property insurance will reimburse you for your losses.
Business from home
According to the Small Business Administration, more than half of all small businesses are home-based. If you run your business from your home, you will need separate coverage from your personal homeowners or renters insurance policy.
Home business insurance provides additional protection for your business equipment and supplies, as well as protection against liability issues that are not covered by your personal policies.
Workers Compensation
If you have employees, you are generally required to have workers’ compensation insurance. Workers’ compensation pays for your employees’ medical care and a portion of their wages if they are injured or sick while working.
Other types of coverage
Beyond the seven main types of small business insurance, there are many other types of coverage. If your business works in particular industries or has specialized needs, you may need additional insurance. Some common plugins include:
- Business interruption: If your business was forced to close due to a covered reason, such as storm damage, business interruption coverage will help cover your loss of income.
- Commercial car: If you have vehicles that you use for your business, including delivery trucks, you will need a separate commercial auto policy.
- Cyber liability: For businesses that sell or store customer information online, cyber liability insurance is a must. If your information (or your customers’ details) is compromised, cyber insurance covers the costs of system recovery efforts, notification fees, fines, and identity theft protection for your affected customers.
How to buy small business insurance
To purchase small business insurance, follow these steps:
- Think about what coverage you need: Consider what type of insurance you need. For example, if you have company vehicles, you will probably need commercial auto coverage in addition to general liability and professional liability policies. And if your business operates in areas prone to natural disasters, such as floods or earthquakes, you may need separate business policies for those issues as well.
- Shopping around: Prices can vary significantly depending on the insurer. Many insurers allow you to request small business insurance quotes online; Enter information about your company’s age, income, industry, and employees, and the insurer will give you an estimate of your desired coverage.
- Contact an Agent or Broker: Once you know what type of insurance you need, you can contact commercial insurance brokers or company agents to get exact pricing details and purchase a policy.
According to Mark Friedlander, director of corporate communications at the Insurance Information Institute, a broker can be a valuable resource as you begin the process.
“A qualified broker can help a business owner gather all the information they will need to apply for a policy and help them compare prices between various options and quotes,” he said. “Before hiring (a broker), we recommend reviewing the broker’s background and experience, as well as the services provided and fees charged.”
The National Association of Insurance Commissioners has a tool you can use to find insurance agents and brokers in your area.
Small Business Insurance FAQs
Do I need small business insurance if I’m just starting out?
Many people put off purchasing coverage because of the expense, but according to Chris Rhodes, chief insurance officer at NEXT Insurance, that mindset could be a costly mistake.
“Buying insurance should be one of the things, if not the first, on your checklist as a new business owner,” he said. “Regardless of income or investment level, having insurance is crucial to protecting your future livelihood.”
At a minimum, a simple balance of payments hedge or other basic forms of hedging are a good starting point.
“As a general rule, small business owners should purchase general liability or professional liability coverage as a first line of defense,” Rhodes said.
How much does small business insurance cost?
The cost of small business insurance depends on several factors, including the location, size, and industry of your business. BOP coverage, which bundles common insurance types into a single policy, typically costs between $40 and $170 per month.
What factors affect small business insurance costs?
Several factors affect the cost, including:
- Service or product provided: Certain industries or types of businesses, such as construction or transportation, are more likely to be involved in accidents, so premiums tend to be more expensive to compensate for the higher risk.
- Location: If you live in an area with a high cost of living or an above-average crime rate, your premiums will generally be higher.
- Size: If you have employees, your premiums will be much higher than those of a business owner who is a sole proprietor. The larger the company, the more expensive its premiums will be.
Does my state require business insurance?
If you have employees, federal law requires you to have workers’ compensation, unemployment, and disability insurance. But in some states, certain professions have additional insurance requirements.
For example, in Colorado, doctors are required to carry malpractice insurance. In Oregon,
Lawyers must maintain malpractice insurance with the state Professional Liability Fund.
Visit your state’s professional association or regulatory commission to find out what coverage you will need.
Do self-employed people need business insurance?
Freelancers can benefit from business insurance even if they don’t work in person with clients. Basic coverage, including professional liability coverage, can protect against problems such as lawsuits for errors or mistakes.
Food to go
To ensure that your business is not stopped or affected by weather, theft, accidents or lawsuits, small business insurance is a crucial purchase. When you start looking for insurance, request quotes from top small business insurance companies.
“As a general rule,” Friedlander said, “small business owners should get commercial insurance quotes from at least three different companies.”
Shopping around will help you find the best coverage at the lowest price.
