In any small business, risks come in many forms — natural disasters, legal disputes, employee injuries and even cyberattacks. These risks may seem unavoidable, but the right insurance coverage safeguards your business, protecting its stability and long-term success.
Choosing the right business insurance is about more than just compliance; it’s about maintaining your assets and reputation.
So, let’s break down the types of business insurance you might need and how to build a comprehensive protection plan.
Why do you need business insurance?
The primary purpose of business insurance is to minimize financial losses stemming from unforeseen events. Without adequate coverage, a single lawsuit or a fire at your business premises could jeopardize your business’s future.
Insurance also builds credibility with clients, partners and vendors by reassuring them that you’re prepared for potential risks.
It may be tempting to minimize costs by opting for the bare minimum, but inadequate coverage can result in significant financial losses. The peace of mind that comprehensive insurance provides is well worth the investment.
Unfortunately, 29% of business owners don’t have any business insurance at all. Often, it’s because they don’t know what they need. In the next section, we’ll cover several different types of policies you might need to protect your business.
Types of business insurance to consider
Business insurance isn’t one-size-fits-all. Different organizations have different risks. Here are some of the most common small business insurance options to help you select the right coverage.
General liability insurance
This coverage protects against claims of bodily injury, property damage, or personal injury — like defamation, libel or slander — arising from your business operations. This coverage is essential for most businesses because even a minor incident can lead to costly lawsuits.
Professional liability insurance
Also known as Errors and Omissions (E&O) insurance, this policy is crucial for businesses offering services or advice. It protects against claims of negligence, mistakes or failure to deliver services as promised.
Commercial property insurance
If you own or lease a physical location or business property, commercial property insurance covers damage to buildings, equipment, inventory and furnishings due to events like fires, theft or natural disasters.
Keep in mind that most commercial property policies exclude coverage for damage from floods and earthquakes. You may need to buy separate policies to cover these risks.
Workers’ compensation insurance
If you have employees, you need workers’ compensation insurance. This covers medical expenses, lost wages, ongoing care and even funeral costs for employees injured or killed on the job.
Every state except Texas requires companies to buy workers’ compensation once they have a minimum number of employees — in some states, you need it as soon as you hire your first one. You could face financial penalties or even jail time if you’re required to have it but don’t carry it.
Cyber liability insurance
Cyberattacks and data breaches are growing threats in our digital age. Most small business owners recognize this risk because 60% identify cybersecurity threats as their top concern, according to a survey from MetLife and the U.S. Chamber of Commerce.
Fortunately, cyber liability insurance, also known as data breach insurance, helps cover the costs of data recovery, legal fees and notifying affected parties.
Commercial auto insurance
If your business owns vehicles, this policy covers property damage and bodily injury from vehicle accidents. Your personal auto insurance typically won’t extend coverage to business use.
Business interruption insurance
When unforeseen events like natural disasters, fires or vandalism force your business to pause operations, a business interruption policy helps replace lost income so you can cover operating expenses.
Umbrella insurance
For additional protection, umbrella insurance provides extra liability coverage, stepping in when a covered loss exceeds the limits of your general liability or commercial auto policies.
How to choose the right insurance package
You may be required to carry general liability or commercial property coverage to satisfy lease terms or need workers’ compensation coverage to comply with state law. Beyond those requirements, here are tips for choosing insurance coverage to meet your needs.
- Conduct a risk assessment. Identify potential risks your business faces (e.g., physical, financial, operational and reputational risks). Prioritize them based on likelihood and potential impact.
- Work with a licensed insurance agent. Independent agents have access to multiple insurance companies and can tailor policies to fit your business. They can also explain terms like deductibles, coverage limits and exclusions in plain language.
- Compare policies. Get quotes from several companies. Don’t just look at the cost of coverage — consider quality, claims handling and customer service.
- Bundle policies for cost savings. Many insurers offer discounts when you combine multiple coverages (e.g., general liability and property insurance). Some companies also offer a Business Owner’s Policy (BOP) that combines general liability, business property and other coverages in one policy.
- Review policies annually. Regularly reassess your insurance needs as your business grows and changes. Add coverage for new risks or adjust limits to align with growth.
By evaluating your options and consulting with trusted professionals, you can craft an insurance package that shields your business from potential threats and supports its long-term success.