Small Business Insurance: What Coverage Do You Need?

Starting a business takes courage, hard work and often a significant investment of time and money. But one accident, lawsuit or disaster could threaten everything you’ve built. Business insurance helps protect your business, your income and in some cases your personal assets. Understanding the most common types of coverage helps you choose the protection that fits your business without paying for coverage you don’t need.

Why business insurance matters

Even careful business owners face risks they can’t fully control. A customer could slip and fall in your store. A client could claim your advice caused them financial harm. A fire, storm or theft could destroy your equipment and inventory. An employee could be injured on the job. Without insurance, the costs of these events, including legal fees, settlements, repairs and lost income, could be devastating.

In addition to protecting you, insurance is often required. Landlords may require liability coverage before signing a lease, clients may require it before signing contracts, lenders may require it as a loan condition and state laws require certain coverage, such as workers’ compensation, once you have employees.

General liability insurance

General liability insurance covers claims that your business caused bodily injury or property damage to others. For example, if a customer slips on a wet floor in your shop or you accidentally damage a client’s property while working at their home, general liability insurance can help cover medical expenses, repair costs and legal fees.

It often also covers claims of advertising injury, such as accusations of libel or copyright infringement in your advertising. Many clients, landlords and event venues require proof of general liability insurance, making it one of the most common types of business coverage.

Professional liability insurance

Professional liability insurance, sometimes called errors and omissions insurance, covers claims that your professional services or advice caused a client financial harm. For example, a client might claim that a mistake in your work, a missed deadline or bad advice cost them money.

This coverage is common for consultants, accountants, financial professionals, designers, marketers, IT professionals, real estate agents and other service providers. General liability insurance typically doesn’t cover these types of claims, so service businesses often need both.

Commercial property insurance

Commercial property insurance protects your business property, such as buildings you own, equipment, inventory, furniture and supplies, from covered events like fire, theft, vandalism and certain weather damage. Policies differ in what events they cover, so review exclusions carefully. Flood and earthquake damage, for example, often require separate coverage.

Home-based business owners should know that standard homeowners and renters policies often limit or exclude coverage for business property and business liability. If you run a business from home, ask your insurer about adding a home business endorsement or buying a separate business policy.

Business owner’s policy

A business owner’s policy, or BOP, bundles general liability and commercial property coverage into one package, often at a lower price than buying them separately. Many BOPs also include business interruption coverage. BOPs are designed for many small and midsize businesses with relatively standard risks, such as retail stores, offices and restaurants.

Workers’ compensation

Workers’ compensation insurance covers medical costs and lost wages for employees who are injured or become ill because of their job. It also typically protects employers from lawsuits related to workplace injuries. Most states require businesses to carry workers’ compensation once they have employees, though rules vary by state, including the number of employees that triggers the requirement and which workers are covered. Check your state’s requirements.

Other coverage to consider

Commercial auto insurance covers vehicles used for business purposes. Personal auto policies may not cover accidents that happen while you’re using your vehicle for business, so if you drive for work regularly, check your coverage.

Cyber liability insurance can help cover costs related to data breaches and cyberattacks, such as notifying customers, recovering data, legal fees and regulatory penalties. It’s increasingly important for businesses that store customer data, process payments or rely heavily on technology.

Product liability insurance covers claims that a product you make or sell caused injury or damage. It’s important for manufacturers, wholesalers and retailers.

Business interruption insurance, sometimes included in a BOP, helps replace lost income and cover ongoing expenses if your business must close temporarily because of a covered event, such as a fire.

Commercial umbrella insurance provides additional liability coverage beyond the limits of your other policies, offering extra protection against large claims.

How to choose the right coverage

Start by assessing your risks. Consider what could go wrong in your business, what you’re legally required to carry and what clients, landlords or lenders require.

Compare quotes from several insurers or work with an independent insurance agent, who can compare policies from multiple companies and help you find appropriate coverage. Read each policy carefully, paying as much attention to exclusions and limits as to what’s covered. Understand the deductibles and how claims work.

Review your coverage as your business grows. Adding employees, moving locations, launching new products or increasing revenue may change your insurance needs.

Protect what you’re building

Business insurance is an investment in your business’s stability. While premiums are an ongoing expense, the right coverage can help ensure that a single unexpected event doesn’t undo years of hard work.