As a business owner, you invest a great deal of time, energy, and money into building a company you can be proud of. Natural disasters, fraud, theft, and accidental injuries can put your hard work at risk.
Business insurance is designed to help companies protect themselves and their assets from risks such as:
- Property damage
- Employee injury or illness
Without this type of insurance, your business risks having to pay for these types of losses, which can be extremely costly. Without insurance protection, you are putting the future of your business at risk.
Insurance is important for ventures of all sizes, including small businesses. Read on to learn more about the most common types of business insurance you can purchase, including those that may be required by law.
8 Main Types Of Business Insurance Coverage
Unsure how to decide the necessary insurances to buy? Consider the nature of your business, your needs, the common risks you face, and which types of coverage are required in the state where your business was founded.
Some types of insurance, such as unemployment insurance, are required by nearly all businesses.
1. General Liability Insurance: Covers liability claims against your business, such as slip and fall accidents or false advertising claims. Most businesses that have a physical location should carry this type of coverage.
2. Workers’ Compensation Insurance: This type of coverage pays for medical care and a portion of lost wages when employees are injured on the job. It does not require establishing fault, and laws limit the amount that can be paid out. This policy is required in most states.
3. Disability Insurance: This covers a portion of lost income if an employee or business owner is unable to work for some time. This type of policy is not required by law but can be critical for business owners who handle much of the day-to-day operations of their business. Short-term disability can function as maternity leave coverage.
4. Unemployment Insurance: This policy is required by federal law for employers who pay more than $1500 in wages a quarter or have at least one employee for at least 20 weeks per year. It covers a portion of lost wages for employees who lose their jobs due to specific circumstances, such as being laid off.
5. Directors and Officers Insurance: Often called D&O, this is liability insurance designed to protect the personal assets of directors and officers of a company or non-profit in the event they are sued by any party regarding their management of or advising of the organization they work for or volunteer for.
6. Property, Homeowners’, and Renters’ Insurance: These policies generally cover the structure and items inside a building when damaged by theft, natural disasters, fire, or vandalism. While not legally required, it is important to protect items like inventory, electronic POS systems, and other items stored in your business.
7. Professional Liability Insurance (E&O): A type of liability insurance that protects companies, businesses, and freelancers that offer advice or services. Claims might allege negligence, errors, or omission. Those who would benefit from this type of insurance include consultants, marketers, home services professionals, health professionals, tax preparers, lawyers, and wedding planners. It may also be referred to as Errors & Omissions Insurance, or professional indemnity insurance (PII).
8. Product Liability Insurance: Protects companies that make goods from claims involving bodily injury or property damage. For example, if a company makes and sells an external battery that results in a fire that injures people and damages property. Companies that make, design, or manufacture goods should consider carrying this type of coverage.
Frequently Asked Questions About Business Insurance
There are dozens of different business insurance types to choose from, and it can be overwhelming for anyone. Here are twelve FAQs that we hand-picked just for small businesses.
What business insurance is required by law?
- Workers’ compensation insurance
- Unemployment insurance
- State disability insurance
Depending on what types of services your business offers, you may be mandated to purchase additional types of policies. Check with the Small Business Association chapter in your state for more info.
What kind of insurance do you need for a small business?
Additional policy needs will depend on the nature of your business and its day-to-day activities.
What is covered under a commercial general liability policy?
The insurance company will typically cover the legal costs and damages required by the court if they find you liable for the situation.
What is the difference between professional and general liability insurance?
Although both types of policies protect you against business liabilities resulting from lawsuits, they differ in the type of risk they cover.
What is covered under a business owner’s policy?
Business owners’ policies are a combination of multiple insurance policies.
What are the benefits of workers’ compensation insurance?
Regardless of what the policy covers (the specific requirements are set by individual states), you as the employer are required to cover the premiums.
Do I need product liability insurance for my business?
In general, if you sell physical goods, you should have product liability insurance. Note that the further you are down the manufacturing line, the cheaper your premiums — e.g., the store owner pays less than the manufacturer.
Does an LLC need business insurance?
Without adequate business insurance, the cost of defending yourself legally and paying out damages might bankrupt your company, despite shielding your personal assets.
What is home-based business insurance?
Such a policy is necessary for those who host client visitations, keep inventory on hand, or provide office space to employees.
How much does business insurance cost?
High-risk industries (in insurance terms) are typically determined by chances of damage to employees and civilians, construction being one of them. Other specifics like first-time owners or prior claims, or higher coverage limits may also result in a higher liability premium.
How are general liability premiums calculated?
- The business classification reflecting your industry and type of operation
- The rate, which reflects the limits you have chosen for your policy’s coverage
- The exposure base, which factors in things like your sales volume, size of physical location, and more
Is business insurance tax deductible?
Additional Resources On Business Insurance
Looking to learn more about business insurance? Here are a few official online resources and books to ensure you are educated on all your insurance options.
- Business Counseling & Support – US Small Business Association (SBA.gov): A business counseling search portal where you can find local small business counseling and support from SBA accredited partner organizations.
- Get Business Insurance – US Small Business Association (SBA.gov): A brief, step-by-step guide to getting started with small business insurance.
- Small Business Health Insurance For Your Business (HealthCare.gov): An official government resource on buying small business health insurance.
The following books are from the National Underwriter Resource Center and cover a range of business insurance-related topics.
- Businessowners Policy Coverage Guidebook: An easy reference for understanding complex BOP policies.
- Commercial General Liability Coverage: Case summaries to help you understand the coverage provisions of CGL policy over the past few years and in-depth analysis of several major issues.
- Directors and Officers Liability: Exposures, Risk Management, and Coverage: A comprehensive guide to understanding the coverages you can expect and insights into emerging exposures.
- Homeowners & Home-Based Business Coverage Guides Combo: A single volume designed to help you understand coverage and exclusions for policies designed for businesses that operate out of a home.
- Workers Compensation Guide: Coverage and Financing: A complete guide to understanding exclusions, requirements, and policy wording for workers comp insurance.
Before choosing a business insurance policy, make sure you understand the types of insurance required for your business by law.
The Small Business Association chapter in your state or your state’s website should be able to provide this information.
Protecting your business is critical to success, and the right insurance policies can give you peace of mind.