Types Of Insurance For Your Small Business

Starting and running a small business requires countless small decisions. Choosing the right business insurance is one of the most important decisions, and speaking with an insurance professional is a smart step.

Before you speak with a provider, learn the types of business insurance available so you can make an informed decision.

Do You Need Business Insurance?

The short answer to the question “Do I need business insurance?” is yes. Most businesses, regardless of size, should carry at least some basic insurance.

Other types, while optional, are critical for protecting your business from disaster and financial ruin. Insurance helps your business weather unexpected events like a fire, theft, a lawsuit, or an accident.

Business insurance premiums are often tax-deductible, too. Check with a tax professional to confirm eligibility.

The number of insurance providers can feel overwhelming. If you’re not sure where to start, take a look at our list of the best business insurance providers. We’ve highlighted top options for different types of businesses to help you make the right choice.

Types Of Business Insurance You Might Need

Before we get into the different types of business insurance that are available, let’s talk about three business insurance categories:

• Required Insurance: Local, state, or federal law may require your business to carry certain types of insurance.
• Essential Insurance: You can’t eliminate all risk from your business, but you can add practical coverage to mitigate risk as much as possible.
• Specialty Policies: Your business may have some characteristics that make an uncommon type of insurance necessary. This could be where you’re physically located, the type of work you do, or something else.

Let’s start with required insurance types.

Legally Required Business Insurance

The types of business insurance you may be legally required to carry will depend on your company type, size, and the state you do business in. Requirements vary by state, so it’s important to understand applicable laws and to consult an insurance professional to ensure your business remains compliant with all mandatory insurance requirements.

• Workers’ Compensation Insurance: This type of coverage safeguards your business from costs or lawsuits stemming from employees’ job-related injuries, illness, or death. Most states require businesses with employees to carry workers’ compensation insurance, though requirements vary by state (Texas is a notable exception). Workers’ comp policies pay benefits directly to employees who are injured on the job. Read more in our complete guide to workers’ compensation.
• Commercial Auto Insurance: If you own vehicles through your business and you or your employees regularly use these vehicles for work purposes, you’ll typically need commercial auto coverage to protect you and your employees in case of accidents, natural disasters, vandalism, and theft. Be aware that many personal auto insurance plans do not include provisions to cover vehicles used for business.
• Health Insurance: If your business meets certain conditions, you may be required under federal law to offer health insurance to employees. Under the Affordable Care Act (ACA), if you have 50 or more employees for 6+ months of the year, you may be required to offer health insurance. Healthcare requirements can be complex, so make sure you understand small-business health insurance.

Related: If your business is not legally required to provide health insurance to employees, it’s still an option. And it’s one that can help your business remain competitive for top talent. Another perk of choosing to offer health insurance to your employees is that doing so may make your business eligible for the Small Business Health Care Tax Credit.

7 Essential Types of Business Insurance

Outside of these, most business insurance coverage is optional. However, operating without some type of business insurance is highly risky. Without the right type of business insurance, you may be responsible for covering lawsuits, natural disasters, and other damages on your own, and that could bankrupt your business.

Think of these essential insurance types as options you can mix and match based on your needs.

1. General Liability Insurance For Business

Although general liability insurance isn’t required by law, it protects you in the event of a lawsuit or an accident. Even if the risk seems low, accidents like slips and falls can still happen.

Claims against your business can come in the form of bodily injury, property damage, personal injury to a customer (including slander or libel), or false advertisement. Without a general liability policy, you’ll be responsible for handling those claims yourself.

Don’t let cost be a barrier to obtaining this crucial type of coverage. We’ve put together a list of the best business liability insurance, and some options are relatively affordable. With policies available for as low as $11/month, that’s a relatively low cost for the protection general liability insurance provides.

2. Commercial Property Insurance

This type of insurance includes protection for all the property used to run your business. Commercial property insurance typically covers your building, inventory and equipment within your building, and property owned by others while it’s in your care.

Property damage due to theft and some — but not all — natural disasters also fall into this category. Common exclusions include earthquakes, volcanic eruptions, and floods.

If you rent space for your business, your landlord may require you to carry a renters’ insurance policy. Commercial renters insurance is often included under commercial property insurance. This can result in renters paying for unnecessary coverage, including the building itself.

Although most insurance companies offer some type of commercial property insurance, only a few offer property insurance aimed at renters. You can find four good and affordable options on our list of the best commercial renters insurance.

3. Business Owners Policy

Many insurers offer a bundle known as a Business Owners Policy, or BOP for short. Most BOPs include both general liability and commercial property insurance, but coverage can vary by insurer, so be sure to ask your preferred carrier what their BOP covers.

BOPs typically bundle policies at a discounted rate compared to purchasing them separately. There’s no set discount, but it’s typically around 10%.

4. Professional Liability Insurance

Professional liability insurance is often referred to as errors and omissions or E&O. It’s sometimes called indemnity or malpractice insurance, too. Professional liability insurance covers the cost of defending your company in a lawsuit where the claim is that your business caused a financial loss for a client through employee error or failure to perform a service as required through omission.

While this type of insurance may be required for medical and legal businesses, it’s generally optional for small businesses and can be obtained as an add-on to your general liability insurance.

Consider this coverage if your business involves giving customers advice, if a customer could claim damages after you misdiagnose a problem or leave out a step, or if an employee error could result in financial loss or client disputes.

5. Data Breach Insurance

Also known as cyber security insurance, this type of coverage protects your business from the costly after-effects of a data breach. If your business takes payments from customers, whether online or in person, you likely have cybersecurity measures in place. Data breach insurance helps cover costs if those measures fall short in protecting your own or your customers’ private information.

Coverage may include notification costs, legal fees, credit monitoring, and regulatory fines.

This policy may also provide access to professionals who help you navigate legal and regulatory requirements after a breach.

6. Business Interruption Insurance

If your business is impacted by a disaster, your commercial property insurance should cover the cost of replacing and repairing inventory and equipment. However, this does not cover lost sales.

That’s where business interruption insurance comes in. This type of coverage helps you recoup lost revenue and pay the rent while your business is temporarily unable to operate. If relocation is required because of damage, your business interruption policy may pay for relocation and assist with lost income.

Coverage typically applies only when the interruption is caused by a covered event (such as fire or storm damage).

7. Umbrella Insurance

Insurance is designed to protect against worst-case scenarios, and even good coverage sometimes leaves you uncomfortably exposed. Lawsuits can exceed standard coverage limits if the stakes are high enough.

General liability insurance provides a set amount of coverage, but coverage limits may not fully protect you if a claim exceeds your policy limits. Umbrella insurance extends the ceiling of your general liability coverage. Umbrella policies typically offer a high dollar amount of coverage for a relatively low cost.

Additional Insurance Coverage For Individual Business Types

We’ve covered the business insurance coverage that may be required by law, and we’ve discussed seven types of coverage that all businesses should consider. Next, it’s time to look at specialty insurance policies that apply to certain niches.

How To Choose The Right Type Of Business Insurance

No two small businesses are alike, and no one type of insurance coverage will suit every business. Understanding your options helps you choose the right coverage while staying compliant with legal requirements. Always consult with an insurance professional for the best advice on what type of insurance is right for your business, and ensure you’re following all federal, state, and local legal requirements and mandates.

In the end, choosing the right type of business insurance can protect your business from claims, property damage, and other disasters, and can give you peace of mind. This helps you focus on running your business.