Many kinds of insurance are available, and the ones a specific business needs depends on a variety of factors.
Table of Contents
- What Insurance Is Needed for a Small Business?
- What Insurance Do You Need to Start a Business?
- Should All Small Businesses Have Insurance?
- How Does the Industry Affect What Type of Insurance a Small Business Needs?
- How Can You Choose the Right Insurance for Your Small Business?
- Key Takeaways About Insurance for Small Businesses
What Insurance Is Needed for a Small Business?
There is no one-size-fits-all set of insurance policies that works for all businesses. The kind of business largely determines insurance requirements. The table below summarizes the basic types of insurance.
What Insurance Is Needed for a Small Business?
|Insurance type||What it covers|
|General liability insurance||Bodily injury and property damage caused by a business or that occurs while someone is visiting a business|
|Professional liability insurance||Bodily injury and property damage that occur due to errors or malpractice|
|Commercial property insurance||Replacing or repairing fixtures, signage, equipment, supplies, furniture, and other items owned by a business in a covered event like a fire or theft|
|Home-based business insurance||Business equipment and supplies stored and used in a residence for business purposes|
|Business interruption insurance||Lost income when a business needs to close because of fire, theft, falling objects, and other covered hazards|
|Commercial auto insurance||Physical damage and bodily injury caused by an accident that involves a business vehicle or a personal vehicle being used for business purposes|
|Cyber liability insurance||Legal expenses that arise due to data breaches and cyberattacks|
|Errors and omissions insurance||Legal expenses related to loss due to mistakes or oversights, such as giving bad advice to a client or making a mathematical error|
|Commercial umbrella insurance||Provides additional protection on top of other insurance, covering any unpaid costs if a claim exceeds the total liability coverage of another business insurance policy|
|Product liability insurance||Property damage and bodily injury caused by faulty products that a company manufactures or sells|
|Directors and officers insurance||Legal expenses of key decision makers if a lawsuit arises due to their decisions or actions|
|Worker's compensation||Employees' lost wages and medical care if they become sick or injured due to their work|
|Disability||Employees' lost wages if they cannot work due to a major disability|
|Unemployment insurance||Employees' lost wages if they're laid off due to no fault of their own|
What Insurance Do You Need to Start a Business?
What insurance you need to start a business varies. However, most startups with a physical location will benefit from business liability and commercial property insurance. Business interruption insurance may also be helpful, as startups may not be able to survive even a short closure.
A business owner’s policy or BOP is often a good choice for startups. This type of insurance combines general liability, commercial property, and business continuation and generally costs less than purchasing the policies individually.
Entrepreneurs should check federal, state, and local laws and regulations governing their industry to determine if any other types of insurance are mandatory. A state’s Office of the Secretary of State is a good source of advice regarding insurance requirements.
Should All Small Businesses Have Insurance?
It’s a good idea for all small businesses to have insurance. Under federal laws, all businesses with at least one employee must have worker’s compensation, disability, and unemployment insurance coverage.
Other types of business insurance can greatly reduce the risk of your business facing financial hardship or bankruptcy. Although business insurance is an ongoing expense, the cost is generally much lower than what you would pay in the event of a natural disaster or a lawsuit.
How Does the Industry Affect What Type of Insurance a Small Business Needs?
A business’s industry determines what types of insurance it needs. In some industries, a particular type of insurance may be necessary to legally operate. For example, states generally require that medical and mental health professionals have professional liability insurance to obtain and maintain a license.
The types of risks a business faces also vary by industry. For example, a bakery is likely to need general liability insurance and commercial property insurance. An accounting firm where employees all work remotely may require professional liability, errors and omissions, and cyber liability insurance. A landscaping company may require general liability, commercial property insurance, and commercial auto insurance.
How Can You Choose the Right Insurance for Your Small Business?
To choose the right insurance for your small business, consider what your business owns and what it would cost to replace these items. Then, consider what risks your business faces, such as:
- Property damage
- Natural disasters
Once you’ve assessed your needs, contact multiple insurance companies. Listen to recommendations and obtain quotes. Then, compare the offers. When comparing offers, consider:
- Monthly premiums: How much will you have to pay every month for coverage?
- Caps on liability: Most insurance companies cap total liability at a certain amount. Are you likely to exceed the cap?
- Deductibles: How much will you need to pay out of pocket before insurance covers claims?
- Convenience: Can you make payments online? What are the customer service hours? In what ways can you contact customer service?
- Reputation: How financially sound is the insurer? What do people say about it in online reviews?
- Limitations: What things will the policy not cover? How important are they? Will another policy cover them?
- Bundle discounts: Will you get a discount for having more than one policy with the same company?
Because business needs can change over time, reevaluate your insurance needs and shop for better rates at least once per year.
Key Takeaways About Insurance for Small Businesses
- Most small businesses need basic insurance like general liability, commercial property and worker’s compensation.
- Laws and regulations, industry, assets and risks determine which specific types of insurance a business requires.
- Business owners should get multiple quotes and compare more than just the cost when shopping for business insurance coverage to get the best deal and policies that fit their needs.
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