- Some types of business insurance, including workers’ comp, may be legally required in your state
- Prioritize policies that cover events for which you’re at the highest risk
- Purchase a business owner’s policy (BOP) to bundle three of the most common types of business insurance and save big on your monthly costs
Having insurance to protect your vehicle, home, and health is a no-brainer. So why should business owners treat business insurance any differently? More than 80% of small businesses are uninsured or rely on their personal insurance, which offers inadequate protection.
In 2020, more than 76% of small businesses faced insurable events like theft, employee injury, and contract disputes—all of which can be disastrous without the right coverage.
Learn about the different types of business insurance to help you choose the right small business insurance policy for your company. When things go wrong, you can breathe easy and get back to growing your company no matter what comes your way.
What is small business insurance?
Small business insurance refers to a commercial policy that protects businesses from unexpected events—like accidents, vandalism, natural disasters, and lawsuits.
Just like personal insurance policies, business insurance helps companies avoid financial loss by offering varying levels of coverage in specific categories. For example, commercial auto insurance can help a food truck owner pay for damages from a car accident.
Why you need small business insurance
Most small business owners can benefit from carrying at least one type of business insurance.
A lack of capital is one of the top reasons small businesses fail within 10 years. When you’re insured, you have a safety net that keeps you from bearing the brunt of high legal costs, property loss, or other issues on your own. Carrying coverage for situations you’re likely to encounter can give you peace of mind that your business won’t go under just because of one unforeseen event.
Some types of business insurance are legally required. For instance, most states require you to have workers’ comp if you have employees.
Getting business insurance might seem trivial if you run a sole proprietorship with no employees or contractors that provides low-risk products or services, such as clothing or proofreading. However, the chances of an incident are never zero.
If the choice is between paying a reasonable monthly or annual price or drowning in debt and going bankrupt, insurance can be well worth the cost no matter what industry you’re in.
Types of business insurance for small businesses
There are many types of business insurance you can choose from with varying prices. Here’s what you need to know about nine common insurance options.
1. General liability insurance
If there’s one type of insurance that every small business needs, it’s a general liability policy. This option offers a broad range of insurance coverage:
- Bodily injury to a third party (such as a client or vendor) on your business property
- If someone sues you for libel, slander, copyright infringement, or other advertising injuries by another brand
- Property damage caused by you or your staff while working, such as when a mover breaks a TV or scratches a homeowner‘s wall
General business liability insurance won’t cover you when employees get hurt—that’s what workers’ comp is for—but it offers immense financial relief when you need to pay for medical bills, legal fees, and other big expenses.
This type of business insurance costs around $50 per month on average, though minimum costs may vary based on your industry and company size.
2. Professional liability insurance
Whether you’re an accountant, business consultant, lawyer, or another professional service provider, no one is perfect. You might encounter former clients claiming negligence or that they’ve been misled, which can prompt a malpractice lawsuit. For instance, real estate agents might forget to disclose a known structural flaw on a property they’re selling.
Professional liability insurance (also known as errors and omissions insurance) helps cover the cost of legal fees and settlements. Some states require this type of liability insurance for select industries. This type of liability coverage usually costs around $60 per month.
3. Workers’ compensation insurance
In most states, workers’ compensation insurance is required for any company with employees. If your team members get hurt in the workplace, workers’ comp helps cover their medical bills and lost income from their recovery period.
An average workers’ comp insurance rate is $78 per employee per month.
4. Commercial auto insurance
If you drive a vehicle owned by your company, you need commercial auto insurance. Regardless of the type of vehicle, your auto policy can help cover costs related to accidents, just like your personal policy.
Look for a “hired and non-owned auto” (HNOA) liability policy if you or your team members lease cars or use personal vehicles for work purposes. Commercial auto insurance costs an average of $142 per month for a $1 million policy limit, although the cost can vary based on state, type of vehicle, or number of vehicles.
5. Commercial property insurance
If you have a physical business location, a property insurance policy can protect your on-site assets—such as business equipment, computers, inventory, retail signage, and furniture—in case of theft or damage.
Your property coverage also kicks in when you’re a victim of vandalism or certain types of natural disasters (like fires). It’s a great idea to increase your property coverage if you’re in an area of higher crime or bad weather.
This type of business insurance costs around $63 per month for a $60,000 policy limit and $1,000 deductible.
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6. Cyber liability insurance
Cyber liability policies are a rising small business insurance need. Small businesses with a low employee headcount average $25,000 in losses per year after experiencing a cyber attack, but the average for all small businesses with fewer than 500 employees is a staggering $2.98 million. Becoming a victim of a hacker can devastate most small businesses, so acquiring cyber liability coverage is necessary in the modern age. When a data breach occurs, cyber liability insurance also covers you if clients file a claim against you.
This type of coverage is a must if you’re dealing with sensitive information (like credit card details or medical histories). You can expect to pay $140 per month to protect yourself against cyber liability.
7. Business interruption insurance
If you ever need to shut down your business due to an unexpected event—fires, theft, falling objects, or wind damage—this small business insurance coverage will help you out by covering lost income. Some policies also cover damages to your merchandise and short-term moving costs.
Also known as business income insurance, this type of business insurance can cost between $40–130 per month.
8. Business owner’s policy
A business owner’s policy (BOP) bundles your general liability and property insurance into one package. BOPs often include business interruption insurance too. Packaging these together saves money while providing the protection you need.
Most insurance companies require you to meet their eligibility requirements before you can buy a BOP. Your location, revenue, and square footage may be taken into account. Some insurance companies give preference to certain types of business—like retail stores or restaurants—though many small businesses are able to access BOPs.
The average cost of this small business insurance is $99 per month no matter the policy limit.
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9. Commercial umbrella insurance
If you don’t feel like your policies are enough, extend your safety net with an umbrella policy. This type of insurance can increase policy limits for general liability and auto insurance.
Small business insurance companies charge around $40 per month for each $1 million you want to add to your limits.
Insure your small business for greater peace of mind
No matter what industry you’re in or where you work, it’s always a great idea to insure your small business—at least for the events that pose the greatest risk.
General liability is one of the most common options as it covers a broad list of scenarios, while workers’ comp is often required if you employ staff. If you have a company car or your team members often drive their own cars, add an auto policy to your list.
There are other types of business insurance that protect you in case of loss of revenue, cyber crimes, and other issues you might not expect.
After acquiring small business insurance, learn how to grow your small business with these four strategies.
The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.