What Is Business Insurance & Do You Need It?

Wondering if you need business insurance? How can you tell if your business is big enough? Do new startups and very small businesses even need insurance?

You’re in the right place if you’ve run into questions like these as you build your business. Our guide to business insurance will show you what insurance is, how to tell when you need it, and how to get it if you do.

What Is Business Insurance?

Business insurance is protection for your small business against damage, liability claims, and more. The types of protections you have will depend on the types of coverage you sign up for.

What Is The Purpose Of Business Insurance?

Business insurance serves several purposes. First, it may help your business meet some legal requirements. For example, you may be legally required to offer worker’s compensation and health insurance to employees. Second, it offers financial protection. If your business is hit with a lawsuit or a natural disaster, business insurance can help you recover without going out of business.

What Does Business Insurance Cover?

Business insurance policies can be written to cover almost anything you want. Of course, the more your coverage extends, the higher your premiums will be. Businesses typically start by getting coverage for their physical property (buildings, equipment, and inventory) as well as liability protection from accidents, injuries, and lawsuits.

Most insurance companies offer a bundle of the most essential types of coverage and then allow you to add extra policies to customize your coverage. When you start looking at insurance providers, look into the business owner’s policy (BOP) each offers.

Most BOPs bundle two or more key policies, such as commercial liability and commercial property, into one policy. Different companies offer slightly different BOP packages, but they’re almost always offered at a discount when compared to the cost of purchasing the bundled policies separately.

What Types Of Business Insurance Do You Need?

First things first. If you’re wondering “Do I need business insurance?” the answer is most likely a big Yes. Almost every business, no matter how small, should carry basic insurance coverage.

So the next question is what types of business insurance you need. And the answer to that question is, it depends.

Types Of Insurance Most Businesses Need

If you’re not sure what types of business insurance you need, you definitely should talk to an insurance provider. Most businesses will start with these types of essential coverage:

• Business Owners Policy: A BOP bundles two or more types of insurance coverage. The most common combination is general liability and commercial property, but offerings may vary.
• General Liability: This type of coverage protects your business after an accident or a lawsuit. If anyone slips and falls in your workplace or gets hurt using your products, your general liability insurance will help pay the costs.
• Commercial Property: This type of insurance covers your building, business property inside your building, and other people’s property when it’s inside your building. Commercial property insurance typically covers theft and natural disasters too. However, if you want protection from certain types of disasters, including floods, earthquakes, and volcanic eruptions, you’ll need a special policy for that.

Additional Insurance To Protect Your Business

Once you’ve obtained basic insurance coverage, including general liability and commercial property insurance, you may want to add additional policies to complete your coverage.

Here are some common types of policies small businesses add as they grow:

• Professional Liability: Often called errors and omission or E&O, professional liability insurance covers the costs of defending your company in a lawsuit where a client claims your business caused financial loss through an error or by failing to perform as required.
• Data Breach: Also known as cybersecurity insurance, this type of policy protects your business after you experience a data breach. For example, if you take payments from customers and store their payment information, you’ll be protected from hackers who steal sensitive data.
• Business Interruption: Your commercial property insurance policy will help you replace and repair equipment after a fire or theft. But it won’t help you make up for lost sales and your ongoing business expenses while you recover and rebuild. That’s where business interruption insurance comes in. You’ll get help paying the bills, and you’ll recoup lost income until you’re back up and running.
• Umbrella: Every type of business insurance policy comes with coverage limits. For example, you may be covered for up to $500,000 when a customer falls and gets hurt in your workplace. What happens when the medical bills top that limit? You could be on the hook, but if you’ve added an umbrella policy, it raises your limits and provides added protection.

Of course, there are other types of coverage you may want to carry. For example, if you’re running a restaurant, look into liquor liability insurance. If your business involves deliveries, you might want a commercial truck policy. You might also want to add flood insurance, if you’re located in a flood-prone area. If you’re working in a rented space, look into commercial renters insurance.

Your best bet is to talk to your insurance representative to make sure you’re getting the right types of coverage for your small business.

Business Insurance Required By Law

For the most part, business insurance is optional. Though it’s smart for every small business to carry some basic coverage, you don’t have to.

However, there are a few exceptions. Your business may be required by law to offer the following types of insurance. Always check local, state, and federal regulations for your industry, and talk to an insurance representative for up-to-date advice.

• Workers’ Compensation: If you have employees, you’ll probably be legally required to offer workers’ compensation insurance. It protects your workers and your business by paying benefits directly to employees who are injured on the job.
• Commercial Auto: If you or your employees drive company-owned vehicles, you must carry commercial auto coverage. It will protect you in case of accidents, natural disasters, vandalism, and theft.
• Health Insurance: If your business meets certain conditions, mostly regarding the number of employees, you’ll be required to offer workers health insurance. Our guide to small-business health insurance can help you understand this complicated topic.

How To Get Business Insurance

The best way to get business insurance is quickly. When you’re operating a small business without insurance, you’re at risk every day. That’s not meant as a scare tactic; it’s a fact. Without reliable insurance, your business could face financial disaster in myriad ways.

So don’t wait. And don’t let the cost of insurance be a barrier. On our list of the best insurance companies for small business, you’ll find some surprisingly affordable policies.

In fact, our list of the best liability insurance providers offers basic liability coverage starting at just $11/month. That’s a small price to pay for the peace of mind that comes with having business insurance.

Business Insurance FAQs