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You thought of everything when planning your small business—but did you think about insurance? Small business insurance can safeguard small business owners against a range of risks, from theft and fire to lawsuits and cybercrime. To be fully protected, however, it's important to find the right coverage.
How Does Small Business Insurance Work?
Small business insurance needs vary depending on industry, company size and other factors, but most small businesses start with the following coverage:
- Commercial property insurance protects your business's physical structure and property, such as inventory, machinery, furniture and equipment, from perils such as fire, lightning, wind and theft. (Like homeowners insurance, commercial property insurance generally doesn't cover earthquake or flood damage; you'll need separate policies for that.)
- Commercial general liability insurance protects you against losses from bodily injury, property damage and personal injury caused by your business, as well as for losses that occur in the process of advertising your business. An example of a covered event might be a customer having a trip-and-fall accident or a competitor suing you for slander.
- Business interruption insurance replaces lost income if your business has to close for an extended time due to a loss covered by your property insurance. For example, if your business burns down, business interruption insurance can help pay your bills while you get up and running again.
A business owner policy (BOP) combines the three policies above into one. Designed for businesses with 100 or fewer employees and revenues of $5 million or less, a BOP can be less expensive than buying separate policies.
Depending on your needs, you may want other types of small business insurance.
- Workers' compensation insurance helps pay wages, medical care and other costs for employees who are injured or become ill on the job. Whether it is required depends on your state law.
- Commercial auto insurance may be needed if you or your employees drive your own vehicles, company vehicles or rental vehicles for business.
- Professional liability insurance: Accountants, consultants and others who provide professional services or advice benefit from this coverage. Also known as errors and omissions insurance, it protects you if a mistake you make causes a client to sue you.
- Key person insurance: If a key employee dies or becomes disabled and can't work in your business, key person life or disability insurance provides funds to help with the cost of replacing them.
- Cyber liability insurance (also called data breach insurance) covers losses due to cybercrime, such as legal fees or the cost of notifying customers of a breach. It's useful if you collect sensitive customer data, such as contact, payment card or medical information.
- Commercial umbrella liability insurance, like personal umbrella liability insurance, expands the limits of your existing coverage to fill in any gaps.
- Product liability insurance helps pay legal and other costs if a product you manufacture, sell or distribute harms people or property.
- Employment practices liability insurance helps protect against employment discrimination lawsuits—useful if you have employees.
What Does Small Business Insurance Cover?
What small business insurance covers depends on the specific plan purchased and the amount of coverage you buy. For example, coverage levels on a BOP are usually lower than if you purchased the different types of coverage separately.
Home-based business owners often learn the hard way that homeowners insurance doesn't cover losses related to their businesses, such as a client injury in your home. You can get property and liability coverage for your home business by purchasing a BOP, adding an endorsement to your homeowners policy or buying insurance specifically for home-based businesses.
In general, business insurance won't cover losses from fraud, such as if you fall prey to a business scam, or protect against damages or lawsuits from illegal acts you commit. Almost every type of business insurance excludes certain losses from coverage, so be sure you thoroughly understand what you are—and are not—protected against.
Where to Get Small Business Insurance
Ready to shop for small business insurance? Here are some good places to look.
- The Hartford sells both business and personal insurance, meaning more opportunities to bundle coverage and save. It offers insurance for businesses of all sizes, so it can grow with your company. In addition to all the standard types of business insurance, it also offers multinational insurance for companies doing business outside the U.S.
- Hiscox focuses exclusively on small business insurance, with coverage for more than 180 professions. Business owners whose clients require insurance for specific projects will appreciate its short-term general liability as well as errors and omissions insurance.
- Insureon is an independent marketplace for small business insurance. Select your industry and receive recommendations for insurance tailored to your risks; then compare and buy policies from a variety of companies.
To find the best insurance for your business, ask other business owners for recommendations. Working with an independent insurance agent familiar with small businesses and your industry also helps. Independent agents work with multiple insurers and can tailor coverage to your needs.
The cost of small business insurance varies widely depending on your industry and the amount and types of coverage you purchase. For example, the median annual BOP premium is more than $1,200 for a restaurant but just $500 for accounting businesses, according to Insureon. To make sure you set aside enough for the coverage you need, it's wise to include the cost of business insurance in your business plan.
Compare coverage from multiple insurance companies to find the best insurance at the lowest price. You can save on small business insurance by bundling policies; raising your deductible; or taking steps to protect your business from loss, such as installing sprinklers, alarms or security cameras.
An Ounce of Protection
Running a small business naturally comes with a degree of risk—and securing small business insurance is one way to protect the company you're working to build. Instead of an afterthought, make small business insurance a foundation of your company's success. By purchasing the right insurance for your needs, you'll be on safer ground should something go wrong.