Author: Jason Morrison | February 20, 2023
Edited by: Jason Morrison and Reviewed: Jason Morrison
As a small business owner, you should have insurance to help protect you from paying out of pocket for expenses related to bodily injury, property damage, and lawsuits.
This article will take you through the different types of insurance coverage for small businesses and help you narrow down the right kind of insurance for your business.
What insurance your small business needs depends on several factors, including the kinds of products and services your company offers, how many employees you have, and whether you operate from a physical location or exist primarily online. Here are some examples of insurance coverages to consider for your business:
General liability insurance is a solid option for most businesses. Let’s say someone gets injured at your store or the building you are renting for your business gets damaged–general liability insurance helps you to pay for those medical or property damage expenses.
General liability insurance can also help to cover expenses arising from libel, slander, and defending lawsuits. It can include product liability coverage, which helps to protect your business against financial loss if you have a defective product that injures someone.
Professional liability insurance covers expenses related to any mistakes your business might make when providing professional services or advice to clients. For example, professional liability insurance could help pay legal expenses for a real estate agent if a buyer claims that they failed to divulge important information about a home before a sale.
Errors that professional liability insurance covers include negligence, misrepresentation, and erroneous advice.
You should have business income coverage if your company operates from a physical location. It can help pay your rent or mortgage, payroll, or loan and tax payments if your business is closed due to fire, theft, storms, or other property damage.
Commercial property insurance helps you pay for damage to your company’s building. It can cover the building and any equipment, inventory, furniture, or tools you use for your business. Commercial property insurance can cover damage from fire, storms, and burglary.
Workers’ compensation insurance is crucial if you have employees. It pays for medical expenses, disability benefits, and lost wages resulting from workplace injuries. For example, if you are a restaurant owner and one of your employees cuts themselves while prepping food, workers’ compensation insurance can help pay for their medical bills.
Most state laws require businesses with employees to have workers’ compensation insurance.
Commercial auto insurance helps cover property damage and medical expenses resulting from any accidents you or your employees may get into when using your company vehicles.
Let’s say you’re a landscaper, and one of your employees accidentally backs your work truck into a client’s storage shed. Commercial auto insurance can help pay for the damage to the vehicle, the client’s property, and any injuries anyone might sustain in the accident.
Data breach insurance is an option if your business handles customers’ personal information. It helps cover the costs of responding to a data breach. This includes contacting those affected, repairing your company’s reputation, and providing credit monitoring services to data breach victims.
For instance, let’s say that you are a contractor and a hacker steals your clients’ personal information from your computer. You can use it to hire someone to investigate the data breach and notify your customers about what happened.
Commercial umbrella insurance offers extra coverage for certain insurance policies, such as general liability or commercial auto insurance policies. It provides an added layer of protection in case of an accident that exceeds your insurance policy limits.
It is best for larger businesses that interact heavily with the public or work on properties belonging to other people. For example, if you own a coffee shop and a customer seriously burns themselves on a hot beverage. Commercial umbrella insurance can help cover any medical costs that go over the amount covered by your general liability insurance.
Employment practices liability insurance helps protect your business from discrimination claims. It is a good idea for any business with employees. For instance, if you have to fire an employee and they come back with a wrongful termination claim, employment practices liability insurance can help you deal with the lawsuit.
A Business Owner’s Policy (BOP) is coverage that combines both business property insurance and business liability insurance into one policy. You can create a customized BOP bundle with many of the insurance options listed above to ensure that your unique requirements are covered.
As an example, the owner of a flower delivery company could add commercial auto insurance to protect their delivery vehicles and workers’ compensation insurance for complying with state laws to their BOP.
Hazard insurance covers the buildings you run your business out of and the equipment your business uses from property damage. It can pay for repair or replacement costs of physical items if your business can’t operate due to property damage.
For example, a hotel owner could use hazard insurance to help pay for repairs and lost income after tornado damage to their building.
While not all small businesses have insurance, many state laws do require you to have some sort of coverage. For instance, most states require businesses with employees to carry workers’ compensation coverage.
Many states also require businesses in specific industries to carry certain types of insurance. Healthcare providers, realtors, lawyers, and businesses that work on government contracts often require professional liability insurance.
At a minimum, your business should have general and professional liability insurance. It protects you from paying for property damage or bodily injury expenses out of pocket. If you have any employees you should have workers’ compensation insurance to help cover costs associated with workplace injuries.
You should examine your risks, learn about your state’s insurance requirements, and talk to an insurance agent to ensure appropriate coverage.
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