What Business Insurance Do I Need? Get Covered and Protect Your Business
Insurance protects your business from losses you can’t afford to cover yourself—the kinds of losses that can put you out of business.
There are many different types of insurance to choose from, and each one covers a different situation. You’ll most likely need several policies to give your business the coverage it needs.
In this article, we’ll go over why you need insurance, what policies are available, how to choose an insurance company, and how much your insurance policy will cost you.
Looking for industry-specific insurance details? Learn more about HVAC insurance, snow plow insurance, or cleaning insurance.
Get answers for your small business insurance needs:
⚠️ Disclaimer: Your existing insurance policy may not include all the insurance types listed in this article. Always speak with your insurance provider to confirm what your policy will cover.
Do I need business insurance?
If you run a small business, you need general liability insurance at the very least. Depending on where you live, your state might even require you to get business insurance—and you’ll run into legal problems if you don’t.
Even if you run a low-risk operation and do top-notch work, accidents can happen. Bad hires can cause problems. You can get sued, even if you aren’t at fault.
Whatever might happen, it’s always best to be prepared.
12 types of insurance for small business
Different types of business insurance cover you in different ways. They can also pay out to different groups, like your clients, your employees, and your business.
These are the types of insurance for small business you may need:
1. General liability insurance
Liability insurance coverage for small business is the most basic type of insurance available—and it’s one you have to have.
It covers claims related to bodily harm, property damage, or personal injury that took place on your property or as a result of your actions (or an employee’s).
Examples of these actions could include:
- You’re working on a ladder at a job site, you drop a tool, and it lands on the client as they’re walking by.
- An employee accidentally breaks a piece of antique furniture at the client’s home.
In these cases, if someone makes a claim against your business, the claim and related legal costs would be covered.
💸 Pays out to: Clients and other people outside your company
READ MORE: Can a company sue for a bad review?
2. Commercial property insurance
Property insurance (also called business hazard insurance) covers damage to physical property that you own, lease, or rent. This includes your office, storage space, and equipment.
Hazard insurance for small business can cover your property or equipment in situations like:
- Fire, smoke, electrical, or weather damage
- Some types of interior water damage
- Structural damage or building collapse
- Damage due to vandalism, rioting, or vehicle collision
Your policy probably won’t include theft or property damage that takes place off site. For those, get crime insurance or a separate rider (policy addition) to cover expensive equipment damage.
Property insurance also doesn’t tend to cover natural disasters like earthquakes and floods. If your area is known for these disasters, get a separate policy for each type of disaster instead.
Pro Tip: If your business runs out of your home office, add a rider for business items to your homeowner’s insurance. This will protect a small amount of company equipment and provide some liability coverage.
💸 Pays out to: Your business
3. Business income insurance
Business income insurance (also known as business interruption insurance) protects your business after an event that keeps you from doing business, like a robbery, fire, or tornado.
You can use the insurance payout to help with:
- Lost income
- Operating costs
- Employee payroll
- Rent or loan payments
- Relocation costs
- Other affected business operations
The average policy will cover your expenses for 30+ days so you can get back on your feet. It may not kick in until shortly after the event, but the insurance provider will reimburse you for necessary purchases if you submit your receipts.
This policy won’t cover large-scale disasters like floods, utility outages, or a pandemic. It also won’t cover actual property damage—your commercial property insurance will take care of that.
💸 Pays out to: Your business
BUSINESS OWNER’S POLICY
A business owner’s policy is packaged insurance for small business owners. It often includes:
1️⃣ General liability insurance
2️⃣ Commercial property insurance
3️⃣ Business income insurance
You can get this type of policy through most insurance providers. You may also be able to add extra coverage to your policy, including the types listed later in this article.
However, if your business’s only employee is yourself, this may be the only small business insurance policy you need.
4. Commercial auto insurance
If you or your employees drive a company vehicle, you’ll need commercial auto insurance in case of a collision or other damage. This protects both your vehicle and others on the road.
Your commercial auto insurance policy should generally cover:
- Personal injury and property damage
- Collision-related medical expenses
- Vehicle damage and theft
You should be able to get coverage for your commercial car, truck, trailer, or van. If you have several vehicles, you can get a blanket policy with commercial fleet insurance.
If your business uses other types of vehicles (e.g., a snow plow), get them insured, too.
💸 Pays out to: Drivers and passengers affected by your vehicle damage
5. Workers’ compensation insurance
If you have employees, you need workers’ compensation. Many states actually require it by law. This type of insurance covers a claim or lawsuit if an employee is injured on the job, including:
- Medical care and equipment
- Physical therapy
- Lost wages (paid out as disability)
- Family financial support (in case of death)
Your policy won’t cover workers who are injured while under the influence or doing personal, non-work-related activities on the job site.
💸 Pays out to: Your employees
READ MORE: 5 job safety analysis forms to share and use on jobsites
6. Professional liability insurance
You may need professional liability insurance (also called errors and omissions insurance), depending on the rules and regulations in your area.
Professional liability insurance adds to the protection you get from general liability insurance. It doesn’t cover injury or property damage, but it can cover claims and lawsuits related to professional issues like:
- Making mistakes or giving clients bad advice
- Breaking a contract
- Not providing quality service on time
💸 Pays out to: Your clients
READ MORE: Is an estimate a contract?
7. Product liability insurance
Product liability insurance protects your business if your products harm someone. This could be the result of design flaws, product defects, or poor warning labels.
You may not run into this situation as a home service business. But if you run a cleaning company that makes and sells your own supplies, for example, you’ll want this type of insurance.
Some general liability insurance include product liability, but not all of them do. If you make or distribute your own products, make sure your policy covers product liability.
💸 Pays out to: Your clients or other product users
8. Employment practices liability insurance
Even the best bosses run into problems with employees now and then. This type of insurance protects you from claims related to your employment practices, including:
- Unfair termination
- Discrimination
- Sexual harassment
If you’re managing a team of employees, read up on your state’s employment guidelines or hire an HR professional. Then get employment practices liability insurance to cover your business.
💸 Pays out to: Your employees
READ MORE: How to fire someone nicely
9. Crime insurance
Crime insurance protects your business’s money and property—and your clients’, if you’re responsible for it while you’re on the job.
This type of policy (also called fidelity insurance) keeps you financially stable after a criminal situation like:
- Burglary or vandalism
- Third-party fraud or forgery
- Employee theft or forgery
- Accepting counterfeit currency
Crime insurance can also help pay for legal costs, property value assessment, and other fees.
You may need a separate policy to cover certain situations, like business identity theft. This depends on your insurance provider and their available crime insurance coverage.
💸 Pays out to: Your business, your clients, and others affected by the crime
10. Cyber liability insurance
Cyber liability insurance (also known as data breach insurance) protects your business if a security breach affects business or client data.
It’s especially important if you have a field service CRM or take payments online.
This type of insurance is different from standard crime insurance because there isn’t any physical property damage. Instead, your cyber liability policy will likely cover costs for:
- Telling clients about the data breach
- Paying to get your data back
- Monitoring business and client credit
- Repairing your business’s public image
- Any legal activities related to the breach
💸 Pays out to: Your business and your clients
11. Key person insurance
Your business will be in trouble if you die or physically can’t work anymore. It’s hard to think about, but you need to plan ahead so your business will outlast you.
Here’s what key person insurance can help with:
- Making up for lost income due to the person’s absence
- Hiring or training an employee to take over their role
- Paying any debts related to the person or their absence
This policy can also apply to other important employees who keep the business running. If money would dry up or operations would grind to a halt without them, get them on your key person insurance policy.
💸 Pays out to: Your business
READ MORE: Professional development resources for home service entrepreneurs
12. Commercial umbrella insurance
Big incidents cost big money, and sometimes a standard insurance policy doesn’t cover it all. That’s when commercial umbrella insurance comes in handy.
This type of insurance adds extra coverage beyond your usual liability. For example, if you max out your commercial auto insurance because of a massive claim, umbrella insurance will help you avoid paying the rest out of pocket.
💸 Pays out to: Clients and other people outside your company
HOW TO MEET CLIENTS’ SMALL BUSINESS INSURANCE REQUIREMENTS
Some clients, partners, or lenders may require you to get insured or update your existing policy. In these cases, you’ll need to ask questions like:
- Do they need a specific type of insurance added?
- What should be your maximum coverage amount?
- Does the client, partner, or lender need to be specifically listed on the policy?
When you get answers to these questions, share them with your insurance agent or broker. They’ll help you find the right policy for your needs, or update your current one appropriately.
Pro Tip: A blanket additional insured clause is useful when you’re working with multiple clients and they all want a certificate of insurance. This clause allows you to add new clients to your insurance without any added costs.
How to choose an insurance provider
There are lots of insurance providers to choose from. But how do you know which one is right for you?
One way is to put together a list of possible providers and evaluate them based on:
- Policy Types: See what policies are available from each provider—not all of them will offer every type of insurance. Make sure the policies you need are available in your state, too.
- AM Best Rating: Find out the insurance provider’s AM Best rating. This is a credit rating system for insurance companies, so an A-rated company will be the most financially stable. Don’t go with a company that ranks lower than a B+—you’re more likely to run into trouble with your coverage if you go with them.
- Customer Service: Check insurance provider reviews online to see how they work with customers. If they have great reviews about their coverage and service, they might be a good bet for your business. Try to find a provider that offers 24/7 customer service, too—you may need support outside of standard working hours.
- Limit and Deductible: Your limit is the maximum amount an insurance company will pay to cover a claim. The deductible is what you pay out of pocket before insurance coverage kicks in for the rest. Ideally your policy would have a high limit and low deductible. However, these policies are more expensive, so try to find the best deal you can.
You can often get a business insurance quote online. Some providers allow you to buy your policy online, too, but others require you to buy through a representative.
SHOULD I USE AN INSURANCE BROKER?
It’s a good idea to use an insurance broker because they can show you options from several insurance providers. They get paid no matter which provider you choose, not from any one insurance company—so you know they’re looking out for your best interests.
“Captive” agents, on the other hand, work for a single insurance company. They have in-depth knowledge of all the products their company sells, which is great if you have questions about a specific policy. However, they also won’t tell you about better options with other companies.
How much is business insurance?
You can expect to spend around $53 USD/month ($636/year) just for general liability insurance, or $84/month ($1008/year) for a business owner’s policy with liability and property coverage.
The amount you pay for business insurance can vary depending on several factors:
- Included policies
- Your limit and deductible
- Business location
- Services provided
- Number of employees
- Office size
- Years in business
- History of past claims
Get quotes from several insurance companies. This will give you a better idea of what policies are available, what you can expect from your coverage, and how much it should cost you.
Pro Tip: Some insurance providers offer a discount if you bundle several kinds of coverage. You may be able to reduce your costs by going with a single provider.
READ MORE: Profit margins: a complete guide for small business owners
Business insurance keeps your company safe. If you aren’t already covered, talk to an insurance broker and take care of it right now. You’ll be glad you did!
Originally published May 2016. Last updated on March 30, 2022.