Business Insurance Guide

Business insurance is designed to protect businesses from all sorts of risks.
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Business Insurance Guide

Written by Brian Greenberg

Last updated: November 24th, 2022

Reviewed by Rebecca Thrift

What Is Business Insurance?

Business insurance is designed to protect businesses from all sorts of risks. It protects physical assets and property against damage, vandalism, and theft, and it protects against damages due to employee injuries. Business insurance can also provide protection against loss of income, thus shielding the company’s financial assets, and it can provide resources to protect intellectual property and help you cope with lawsuits.

What Are the Pros of Having a Business Insurance Policy?

Running a business comes with a lot of risks, financial and otherwise. However, business insurance can provide a buffer against many of those risks. Take a look at some of the advantages of a business insurance policy:

  • Mitigate risks: Your insurance can help keep you running when something unforeseen happens to your business or your industry, guarding you against losses or shutdowns.
  • Help with lawsuits: If someone sues your company, your business insurance can help pay the legal fees you incur fighting the lawsuit.
  • Pay for worker injuries: A worker who becomes injured or disabled on the job can be very costly for the business, but your workers’ comp insurance can help protect you against financial loss, including the costs of missed wages and medical care.
  • Pay for property damage: If your brick-and-mortar premises are damaged or a crucial piece of equipment goes down, you might face having to close your business if you don’t have insurance to cover your repair costs. This includes damage caused by natural disasters, such as tornados, hurricanes, lightning, and fires (although floods are typically not included in standard property coverage).
  • Protects against burglary and robbery: If your business is the victim of a violent crime, it doesn’t have to mean shutting your doors. Business insurance covers loss of cash and inventory due to burglary and theft.
  • Eases the making of contracts: Many contracts require the businesses involved to carry different sorts of insurance. If you’re leasing property, borrowing money, lending money, or making contracts with clients, having business insurance already in place can ease the way to closing the deal. It also helps you build credibility as a new business.
  • Protects your business’s image: Liability insurance can help protect your company’s image, as well as the goodwill that vendors, clients, and shareholders hold toward it in the event of bad publicity.
  • Protects your customers: If a customer is injured on your premises, your business insurance helps pay for their costs. Business insurance can also help pay for injuries sustained in security breaches.
  • Covers advertising errors: If you infringe a law through your advertising, such as violating copyright inadvertently, your insurance can compensate you for losses and legal liability.
  • Keeps you on the right side of the law: In many states, even small businesses are required to carry insurance. By purchasing business insurance, you’re doing the legally correct thing.
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What Are the Cons of Having a Business Insurance Policy?

There are very few disadvantages to having a business insurance policy. However, businesses can run into problems if they don’t have enough insurance or the right kind of insurance.

In some cases, businesses are confronted with claims their insurance doesn’t cover. That disadvantage can be balanced by making sure you have adequate insurance and understand what’s covered and what isn’t.

If you have to file an insurance claim, the process can be time-consuming and frustrating. Waiting for insurance payouts can also push a young business into financial straits. Staying focused on the insurance process and providing all the needed information can drain your company of resources of energy, and even more so if the claim is denied.

Business insurance can also be costly, depending on the type of insurance needed. Businesses whose employees may be prone to injury, such as construction companies, may have an especially high expense line item for business insurance. Businesses may seek to avoid this expense — and then find themselves underinsured when they actually need coverage.

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What Types of Businesses Need Insurance?

Almost every business that’s larger than an artisan creating one-off home decor pieces for sale on Etsy needs some kind of business insurance — and that Etsy crafter may need some insurance as well. Certainly, every business with employees needs workers’ comp insurance, at the very least, which is required by law in most states.

In addition, every business with a physical location will require some insurance on their premises — insurance which is likely to be required by their landlord or mortgage lender. Coverage on the physical premises can include buildings, permanent fixtures, machinery, equipment, furniture, inventory, and the personal property of anyone on the premises.

Do Small Businesses Need Insurance?

Yes, small businesses should have insurance. While it can be hard to understand its necessity when things are going well, when the time comes that you need it, you can’t do without it.

Protects Employees

Small businesses should have insurance to protect their employees. Some employee insurance, such as workers’ compensation, is mandated. Other insurance can be offered to employees as a perk, such as health insurance. Employees feel more secure in their job if they know any damage they incur on the job will be covered.

Protects Property

You should also protect your property and premises with insurance. If a small business rents its brick-and-mortar premises, there’s a good chance the landlord’s property insurance won’t cover the business. Your landlord may require you to carry business insurance. If you’re financing your business in any way, your lender is also likely to require that you carry insurance. Your contracts with clients may require specific types of insurance as well.

Even a small business can be destroyed by a natural disaster or by theft. In fact, a small business may be more vulnerable to damage in these instances because it doesn’t have the deep pockets of a large enterprise to rebuild or weather a downturn.

Legal Protection in Lawsuits

Similarly, small businesses can be especially susceptible to danger in the event of a lawsuit. Without the resources to fight back in court, a small business could be shut down completely simply because it can’t handle legal bills on top of everyday expenses. Liability insurance can provide protection that keeps your doors open and your bills paid.

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Do Sole Proprietors or Self-Employed Individuals Need Business Insurance?

While sole proprietors and self-employed individuals may think their low profile means less need for insurance, they actually face a comparatively high level of risk. These ultra-small companies typically don’t have the resources needed to handle a legal challenge or weather a storm, whether literal or figurative. Having the right types of insurance can ultimately be as crucial to a sole proprietor as having a solid business plan.

At minimum, most sole proprietors need some version of general business liability insurance. This insurance will cover injuries to other people doing business with you (including so-called “slip-and-fall” insurance). It covers damages to your company’s reputation or claims occurring as a result of advertising mistakes or defamation. It also protects property damaged in the course of your business. For example, a house painter who’s a sole proprietor might tap into that insurance if a homeowner claims the painter damaged the antique molding of the home being painted.

What Are the Different Types of Insurance a Business Should Have and What Do These Different Types of Insurance Cover?

The types of insurance a company needs depends on the specifics of that organization’s size, physical presence, number of employees, and location. Companies in certain industries may require specialized business insurance. Most companies need liability insurance, workers’ compensation insurance, and property insurance.

General Liability

Also known as commercial liability or business liability insurance, this insurance covers a business against claims for injury or property damage during business operations. Without it, the business could be held liable for medical bills or the replacement of damaged property.

Product Liability

If your business produces products, you should carry product liability insurance to protect against any claims that your products caused personal injury or property damage. Without this coverage, you’re liable for any claims stemming from product defects, including medical costs, legal fees, and any legal judgments or settlements involving the product.

Commercial Property (aka Business Personal Property Insurance)

Commercial property insurance protects the building that your company owns or rents, as well as the equipment (including computers), machinery, furniture, inventory, building fixtures, landscaping, and tools in the building. It covers losses from natural disasters, such as fire, wind, and lightning, as well as from theft or vandalism. This coverage also protects you against lost income if you’re unable to operate your business due to property damage.

Workers’ Compensation

Most states require businesses to carry this coverage, which helps employees recover from work-related injuries or illnesses. Workers’ comp also protects businesses against the costs involved with such injuries, which can include medical bills, costs for ongoing care, lost wages, and even funeral expenses.

Commercial Auto Insurance

Any business that owns vehicles should carry commercial auto insurance, which is required in most states. This coverage protects against damages due to auto accidents involving your company’s vehicles. It covers medical payments, property damage, and legal expenses, in addition to loss or damage of vehicles by theft or vandalism.

Professional Liability Insurance

Professionals with personal companies often need some form of malpractice insurance, which is essentially a type of professional liability coverage. While most people think of physicians when they hear the word “malpractice,” accountants, attorneys, financial advisors, and consultants may also need this type of insurance.

Other Types of Business Insurance

Other types of insurance your business might need include the following.

  • Errors and omissions insurance: Also known as professional liability insurance, this coverage protects you against any damage caused to clients or customers by errors on your company’s part.
  • Directors and officers insurance: D&O insurance is of most interest to large, publicly traded companies whose directors and officers could face action from their shareholders, but smaller companies with boards of directors can also benefit from it.
  • Business interruption insurance: This insurance protects brick-and-mortar businesses from loss of income if their normal course of business is interrupted.
  • Home-based business insurance: People who run their business out of their home may assume that their homeowners’ or renters’ insurance will cover property damage or personal liability, but it likely won’t. Specialty business insurance is needed instead.
  • Employment practices liability insurance: This type of insurance protects a business against claims of sexual harassment, discrimination, infliction of emotional duress, breach of employment, wrongful termination, and mismanagement of benefits.
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How Much Does Business Insurance Typically Cost?

The cost of business insurance is dependent on several factors, including:

  • Your location: Where your business is located is especially relevant when determining workers’ compensation and commercial auto insurance rates.
  • Your industry: Industries that have higher risks, such as construction or aviation, are going to pay more for insurance coverage than, say, an advertising agency.
  • The size of your company: The more employees you have, the more your business insurance will cost since the risk of injury or accident increases. In addition, workers’ comp insurance is directly related to the number of employees and amount of payroll. The size and age of your building may also affect your insurance costs.
  • Coverage and deductible choices: As with any type of insurance, you’ll pay more in premiums if you choose higher coverage limits and lower deductibles.
  • History of prior claims: If your company has a history of insurance claims, an insurance underwriter may charge you more because of the inherent risk involved with your business.

As of August 2022, Forbes reports the following average monthly costs for different types of business insurance.

Policy type

Policy typeAverage cost per month
General liability insurance$30
Commercial property insurance$63
Workers compensation$70

Do Business Insurance Rates Vary by State?

Business insurance rates can vary significantly from one state to the next. Different states require different types of insurance, and the location factor plays heavily into the differences in costs between states. While cost information isn’t available for all states, take a look at the average costs of insurance for small businesses in the following states as of 2022:

Do Business Insurance Rates Vary by State?

StateAverage Yearly Cost
Alabama$564
Alaska$516
Arizona$480
Colorado$636
Delaware$552
Florida$698
Hawaii$468
Illinois$552
Indiana$528
Maine$516
Maryland$492
Massachusetts$492
Michigan$480
Oklahoma$480
Oregon$564
South Carolina$540
Texas$708
Utah$576
Virginia$420
Wisconsin$516

Where Can You Purchase Business Insurance?

Purchasing the right business insurance for your company is easy when you work through an insurance company such as Insurist. A licensed insurance agency can help you ascertain what types of coverage you actually need and pinpoint the best rates and options for you.

Key Takeaways

  • Business insurance protects business owners against losses stemming from lawsuits, worker injuries, property damage, burglary, and advertising errors.
  • Small businesses, sole proprietors, and self-employed individuals need business insurance just as much as large enterprises.
  • If you have a specialized business, you may need to purchase professional liability, business interruption, home-based business, or commercial auto insurance to cover your company’s unique risks.

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