Business insurance is usually an essential piece to a healthy business. That’s because it can help protect your business—and your bottom line—after unexpected accidents or lawsuits.
Most small businesses can benefit from at least one type of business insurance policy. Small businesses with employees, expensive equipment, vehicles, and a permanent location may need a combination of different types of business insurance.
This guide will walk you through the most common forms of business insurance. By the end, you should have a clear idea of which policies you need and what you need to budget. However, this article is not intended to offer legal or financial advice. Always consult your attorney, state laws, and business advisors when deciding on your policy.
Quick Links
Common types of small business insurance
Though your small business may not ultimately require all four of the following policies, be sure to consider their value carefully before deciding.
General liability insurance
Most small business owners will need a general liability policy. It can provide financial help if someone sues you due to bodily injury, property damage, and personal injury for things like defamation.
Keep in mind that you’re only covered up to your policy limits. Be sure to set these at a reasonable amount. You might also need to pay a deductible before you receive coverage.
Workers compensation insurance
If you have employees, every state (except Texas) requires you to carry workers’ compensation insurance. Even if it’s not required, carrying workers’ comp coverage is a great way to attract high-quality employees and protect them.
Workers’ comp can help pay for medical bills and lost wages related to workplace injuries. A death benefit can also be paid to a worker’s family if the worker perishes from an injury sustained while working.
Additional business insurance coverage to consider
There are a number of insurance policies tailored to the various needs of small businesses. Below are a handful of common insurance products.
Commercial property insurance
If you own or rent a commercial space—or commercial equipment—you may want to consider a commercial property policy. This type of policy will cover you up to coverage limits when you are affected by a covered loss. Always ensure that your policy extends coverage to all the property you need. Some policies don’t cover certain types of equipment without a special rider.
Keep in mind that commercial property insurance often excludes coverage for floods, earthquakes, and other natural disasters. If you live in an area affected by these events, you may want to have an additional policy that covers the specific risk.
Business income coverage
Also called business interruption insurance, business income coverage replaces your lost income when your place of business or equipment is damaged by a covered loss. If your business relies on a physical location, equipment, or other property for you to generate income, then income coverage could be a wise idea.
Most small business owners purchase business income coverage as part of their business owner’s policy (more on this later).
Business Owner’s Policy (BOP)
Looking to streamline your insurance policy? A BOP combines general liability and commercial property coverage, usually at a discount.
Professional liability insurance
Depending on your profession, you may need professional liability coverage. Also called Errors and Omissions Insurance, these policies protect you from actual or alleged negligence related to your professional services. If you’re held liable for damages related to your services, this policy can help with your legal defense expenses and expenses related to judgments.
Commercial auto insurance
Personal car insurance usually won’t cover you if you get in an accident while driving for business purposes. You need a commercial auto policy for that. A commercial car insurance policy can provide:
- Bodily injury liability protection
- Property damage protection
- Uninsured and underinsured motorist proportion
- Medical payment coverage as outlined by state laws
If your commercial vehicle is financed, your lender may also want you to carry comprehensive and collision coverage. You may also need gap coverage if the vehicle depreciates faster than you can pay down the principal.
Employment practices liability insurance
If you have employees, it’s important that you consider adding employment practices protection to your insurance plan.
This type of insurance can offer financial protection if you’re found legally liable for any of the following:
- Wrongful termination
- Sexual harassment
- Discrimination
- Invasion of privacy
- False imprisonment
- Breach of contract
- Emotional distress
- Wage and hour law violations
Your employment practices coverage can pay for legal defense and penalties. Attorney’s fees can be pricey without this coverage—and these events are not covered by general liability insurance in most cases.
Commercial umbrella insurance
A commercial umbrella policy can fill in coverage gaps left by other policies, most often auto insurance and general liability policies. Umbrella coverage is designed to protect you from unusually high settlements.
If you’re found liable and damages exceed the limits on your general liability insurance, for example, your umbrella policy kicks in to provide additional coverage.
Key employee insurance
The business owner isn’t the only player who can make or break a business. In some businesses, a key employee (or several) contributes significantly to a company’s success. While most people think of C-level employees as having “key” roles, key employees could also be your operations manager, product designer, salesperson, or other type of employee.
The policy is owned by the business but taken out on the key employee’s life. It pays out if the employee dies or is disabled and unable to work. If your business’s success heavily depends on one or a few employees, you may consider adding this coverage option to your plan.
Data breach and cyber liability insurance
As the name implies, a data breach policy can cover you when hackers break into your company’s stored data. Sometimes data breach coverage is included in an errors and omissions policy. An independent data breach policy typically offers broader protections for losses during a data breach. If a data breach would cost you more than the average business, you may wish to purchase higher limits of data breach protection.
Data breach coverage is often used interchangeably with cyber insurance, but they are not quite the same thing. Cyber liability policies can protect you from both the losses directly and indirectly related to the data breach. Direct losses include the cost of notification, monitoring, investigation, and repair. Indirect losses include settlements, regulatory fines, and attorney fees.
How much does business insurance cost?
The cost of business insurance can vary based on the business, the industry or profession, and the type of policy. A small business could pay as little as $500 a year for insurance or as much as several thousand dollars a year. Let’s take a closer look at business insurance costs.
Factors that affect the cost of business insurance
There are many factors at play when determining the cost of business insurance. One major factor is the number of policies you need to purchase. Some businesses require several policies, while a sole proprietorship might only need one policy.
The price for each policy will depend on several factors as well. That includes:
- Coverage Limits
- Deductible
- Business size
- Industry
- Location
- Income
- Number of employees
- Claims history
- Insurance company
Business insurance monthly costs
The range for monthly premium costs of business insurance can vary significantly depending on your operation. Here are some examples from NEXT Insurance, a business insurance provider that partners with Gusto:
- General liability: $25 to $45 per month
- Professional liability: $25 to $45 per month
- Commercial property insurance: $45 to $75 per month
- Workers’ compensation: $45 to $75 per month
How can you save money on business insurance?
There are a few simple tactics you can use to lower your business insurance premiums. The first is to be sure you’re setting your coverage limits to the right amount. Buying a policy with limits higher than what you’d feasibly need will lead to unnecessarily high premiums.
You can also potentially save money by bundling the different types of business insurance you might need with one carrier.
Finally, look for an insurance company you can trust to be responsive to your needs and any potential claims you might have. This can help you save time and money if you ever need to respond to an accident or lawsuit involving your business.
Next, you should compare quotes from multiple insurers—at least five. Be sure to take notes during the process, especially in regards to any special perks or coverage options included in the price. Don’t forget to ask about discounts.
Speaking of discounts, the third simple tactic is to bundle your business insurance products. Many insurance companies offer discounts for carrying multiple insurance lines—as much as 20 percent off. You may even get a bundling discount by buying business insurance through your car or homeowners insurance provider.
