Do I Need Business Insurance? What It Does & How To Get It
Business insurance is a necessity for small businesses. Without it, you may pay large sums out-of-pocket for damages and legal claims.
New business owners often wonder, “Do I need small business insurance?” If you’re hesitant to buy business insurance, the question you really need to ask is: How much are you willing to risk by operating without business insurance? Because each day you operate without small business insurance is a day you place your financial success on the line.
According to the Insurance Journal, 90% of small business owners don’t think they’re adequately insured. And 29% don’t have any business insurance at all. More than half of those who participated in an insurance industry survey said they are underinsured or uninsured simply because they don’t know what types of coverage their business needs.
If you’re avoiding business insurance because you’re stuck in that knowledge gap, it’s time to climb out and address your small business insurance needs.
This guide to small business insurance will address these key questions and help you find the coverage you need to safeguard your assets:
- Do I need business insurance?
- What insurance do I need for my small business?
- Is business insurance legally required?
- What is the best insurance for small businesses?
Table of Contents
- The Lowdown On Insurance For Small Business
- Do You Need Business Insurance?
- 6 Reasons You Need Insurance For Your Small Business
- What Insurance You Need For Your Business
- Industry Specific Insurance
- Business Insurance For Retail
- Business Insurance For Restaurants & Food Service
- Business Insurance For The Self-Employed
- Business Insurance For Professional Services
- Business Insurance For Manufacturing & Wholesale
- Business Insurance For Real Estate
- Insurance For Construction
- Insurance For Personal Care Services
- Business Insurance For Trucking Companies
- Business Insurance For Cleaners
- Business Insurance For Auto Shops & Other Vehicle Service Businesses
- The Bottom Line On Small Business Insurance
- FAQs: Business Insurance
The Lowdown On Insurance For Small Business
Just like personal insurance protects your home, your car, and your belongings, business insurance protects your business assets.
Depending on the type of small business insurance policy you sign up for, you’ll be protected from accidents, lawsuits, theft, data breaches, and even unexpected hassles like smoke or water damage.
Check out our “What Is Business Insurance?” explainer for an in-depth look at what business insurance is and what it does.
How Much Does Small Business Insurance Cost?
Business or commercial insurance plans are tailored specifically to your industry and the specific risks your small business faces. So the cost of business insurance will vary depending on your individual factors.
Are you a home-based or online-only business, or do you have a store or office that customers visit? Do you have employees, or are you working solo? What inherent risks are involved with running your business, and do you have a product to protect?
While the average cost will vary depending on the industry requirements, a small business owner looking for a basic business owner’s policy will see an average yearly premium of around $1200. However, policies can start under $20/month for basic liability coverage for a very small business.
The Insurance Journal reports that the average cost of a business insurance claim starts at $8,000 on the low end and can average more than $75,000 if you’re hit with a lawsuit. Even if you purchase a top-of-the-line policy, your annual cost will be far below those numbers.
Is Insurance Required For Small Business?
With a couple of exceptions, there’s no legal requirement to carry small business insurance coverage. You can read more about those exceptions in the next section below.
If you are a sole proprietor of your business and don’t have any employees or customers to protect, business insurance might be optional, legally speaking. However, rules are often state-specific, so it’s important to talk to a business lawyer or state insurance representative to make sure you comply with state requirements.
And even sole proprietors can see significant benefits and peace of mind from adding a cost-effective business insurance policy. Keep reading to learn why.
Do You Need Business Insurance?
Some types of businesses are legally required to carry insurance. For example, if you have more than one employee, you’re legally required to provide worker’s compensation, unemployment, and disability insurance. If your employees drive business vehicles, you will also need commercial auto insurance.
And, if you have 50+ employees six months or more out of the year, you are legally required by the federal government to provide health insurance. If you aren’t required to provide health insurance, and you do anyway, then you’re eligible for a tax break.
Additionally, some landlords and leaseholders require commercial renters insurance or commercial property insurance as part of the lease agreement.
Even if you’re not legally required to carry insurance, it’s smart for all small business owners to view business insurance as part of the cost of doing business.
6 Reasons You Need Insurance For Your Small Business
If you’re still not sure you need business insurance, here are six reasons to change your mind:
- It May Be Required: If you have more than one employee, the federal government requires you to provide worker’s compensation, disability, and unemployment insurance. If you have 50+ employees, add health care to that list. Other requirements are state-specific, so check your state’s legal requirements.
- You Could Face A Costly Lawsuit: You can’t predict when someone might become unhappy with your business or your product and decide to sue. Handling a lawsuit without liability insurance could be disastrous to any small business, even if you’re eventually found not liable.
- Disaster Can Strike: Whether it’s a so-called act of God, a fire, theft, or vandalism, disasters could stop your business from running smoothly, if at all. A package of general liability and commercial property insurance offers protection from the most common disasters. (You may need to purchase specific protection for some natural disasters, like floods, earthquakes, and volcanic eruptions.)
- You May Need To Show Proof Of Insurance: Clients and other businesses you work with may need proof that you’re insured before they can work with your business. And if you want to borrow money, the lender may require proof of insurance.
- It’s A Perk: Offering insurance protection to your employees creates a positive work environment and sends the message that you care about the people working for you. While you may have to provide basic protections like workers compensation, disability, and unemployment, you can also offer health and life insurance policies to help attract and retain quality workers. (Remember, if you aren’t legally required to provide health coverage, you can receive a tax break for doing so.)
- You Can Write It Off: Business insurance is a tax write-off, and you can claim most premiums as deductions. Exceptions exist, so it’s important to check with a tax expert for your state.
What Insurance You Need For Your Business
Once you’ve made the wise choice to insure your business, you need to decide which policies are the best fit for your business model.
Your insurance provider can help you decide what types of coverage are essential for your small business. The most basic types of business insurance are:
- General Liability Insurance: General liability protects your business in the event of a disaster, lawsuit, or accident. Claims against a business can arrive in the form of bodily injury, property damage, personal injury to a customer (including slander or libel), or false advertisement.
- Commercial Property Insurance: A commercial policy insures your building, business products inside your building, and your business equipment while it’s in your care. Property damage due to theft also falls into this category.
- Professional Liability Insurance: Also referred to as E&O or errors and omission insurance, this is additional liability insurance that helps cover your business from professional liability or errors (where your business caused a financial loss for a customer) or omissions (employees didn’t do their job as required).
- Workers Compensation Insurance: If an employee is injured at work, this protects your employee and your business in case of a lawsuit. Workers compensation is required for businesses with more than one employee.
- Commercial Auto Insurance: If your business involves a fleet of vehicles or if an automobile is needed, you will want to cover those vehicles under a commercial insurance plan.
- Business Owner’s Policy: This is a bundled policy offered by most insurance companies; it typically includes both general liability and commercial property protection.
- Renters Insurance: This might be a requirement if you are renting/leasing business space. This protects your location from damage and liabilities for that damage. It’s often included under commercial property insurance, but you can find renters insurance that isn’t aimed at building owners.
- Business Interruption Insurance: If something stops your business from functioning (a flood, an act of God, or an illness or other accident), business interruption insurance will help pay for lost income incurred during the interruption. This insurance specifically covers income and profits and covers the cost of getting your business back up and running.
- Data Breach Insurance: Today, most companies should absolutely prepare for a data breach, especially if you handle sensitive information like social security or credit card numbers. Cybersecurity coverage pays for costs incurred by the loss of information, including notifying impacted customers, advertising the data breach to get the word out, and paying a PR firm to help manage your reputation. If personal information is lost or stolen from your technology business, you have legal requirements to follow in the aftermath, and having data breach coverage will help you follow the law.
- Weather-Related Insurance: Most property policies, whether they’re personal or business insurance, don’t cover all types of weather-related natural disasters. The most commonly excluded trio of disasters is flood, earthquake, and volcano. If you live in an area prone to flooding or near a body of water, for example, you should seriously consider adding flood insurance. Your insurance representative can help you decide if it’s worth adding coverage.
Industry Specific Insurance
Every business, no matter how small, should consider getting basic insurance liability like those outlined above. Start with general liability insurance or a combined business owners policy (BOP). Commercial property insurance or commercial renters insurance is important to add, too.
Depending on your business type, you should consider additional coverage aimed at your industry. Here are some examples:
The Bottom Line On Small Business Insurance
Like it or not, your small business needs at least basic insurance coverage. Depending on your business size, type, and location, you may need more than basic coverage.
It can be hard to know where to start looking for business insurance. That’s why we created a list of the best insurance for small business. The seven insurance providers we recommend offer quick price quotes, offer a solid range of features, and meet customers’ needs. While you’ll find some familiar names and big insurance companies like Nationwide, Travelers, and The Hartford, you’ll also find great options like NEXT and Hiscox, which specialize in smaller businesses.
Whatever you do, don’t wait. Business insurance is too important to leave to chance. Consider your options and make the call today to get insured and protect your small business.