Picture this: You’re a small business owner with a shop in your local business district. One morning, as you’re mopping the floor, a customer walks in. All is well, until they slip, fall, and break their arm. The customer doesn’t have health insurance, and before you know it, you’re getting sued to cover their medical expenses and more.
Bizarre twists of fate canhappen to any type of small business—including ecommerce businesses—and they can shutter your business, fast. Small business insurance coverage can help protect you from a full gamut of random events that are out of your control. Below are key steps that can take you from assessing your insurance needs to finding the right policy—all while helping protect your bottom line.
How to get business insurance
- Understand how insurance can help
- Review different types of business insurance
- Assess business risk
- Get quotes from business insurance providers
- Review, customize, and purchase your policy
- Reassess your policy annually
Business insurance is a way to protect businesses from unexpected financial losses. Here are six simple steps to help you get the right small business insurance to best protect your personal and business assets:
1. Understand how insurance can help
It’s a common misconception that if your business is small, it doesn’t need insurance. But small business insurance can serve both you and your venture in multiple ways, including:
- Protecting your assets. This includes your equipment or building if a theft or natural disaster occurs.
- Financial reimbursement. Insurance can reimburse you for funds you would have earned if unforeseen circumstances, like a cyberattack or burglary stop your business from functioning properly.
- Protection from lawsuits. Insurance provides protection from liability claims from bodily injuries, like slips and falls.
- Closing coverage loopholes. If you run your business from home, homeowners insurance may not cover products and business property in an emergency. A small business insurance policy can fill those gaps in coverage.
2. Review different types of business insurance
Asking yourself “Do I need business insurance?” is just the beginning. There are many types of business insurance, and understanding them will help you determine which type is the best fit for your business. Some of the most common types of insurance that small businesses choose are:
- General liability. A general liability insurance policy provides coverage that can protect your business from lawsuits resulting from bodily injury, property damage, or personal injury. If you’re a contractor, this may be a requirement to perform work in certain spaces, depending on the industry.
- Commercial auto. Commercial auto insurance protects your business if you or one of your employees is in a car accident while driving a company vehicle on the job.
- Workers’ compensation. If you have employees, workers’ compensation insurance is almost always required by law, though details and regulations differ by state. Workers’ compensation provides benefits to employees who injure themselves on the job and are unable to work. If an employee gets hurt and you don’t have it, you could be fined.
- Cyber liability insurance. Cyber liability insurance, or data breach insurance, protects you if there is a data breach and information that keeps your business afloat—think strategic plans, client lists, or banking records—is ransomed. It also covers legal fees if a customer sues you for a data breach.
- Professional liability. Professional liability insurance covers you if you provide professional services to a customer and they sue you for an error, misconduct, or negligence, for example. This coverage is also known as errors and omissions (E&O) insurance.
- Business interruption. This insurance is used when something beyond your control halts business operations. Business interruption insurance covers loss of revenue, along with rent payments, loan payments, and even quarterly tax payments, depending on the scenario.
- Commercial property. Your physical workspace is protected from damages caused by events such as natural disasters, theft, and vandalism.
- Business owner’s policy (BOP). A BOP typically bundles commercial property, general liability, and business interruption insurance coverage.
- Key person insurance. This covers key executives in the company, such as the president or founder. If a key person dies, the payout can be used to fund the search for a replacement or to cover bills to sustain business operations.
3. Assess business risk
Not every business needs every type of insurance. If you’re a business of one and work from home as an accountant, it may be wise to get professional liability coverage but unnecessary to buy workers’ compensation insurance. Alternatively, some types of businesses have greater risk baked into them. Factors to consider when evaluating which insurance is the right fit include:
- Digital footprint. Do you conduct all of your business from your computer? What are your contingency plans if your computer is hacked and you are left unable to work? In this case, cyber insurance may be worth considering.
- Physical workspace. Does your business have a physical location that members of the public enter? If so, you’re going to want general liability insurance.
- Regional weather. Is your business located in an area that is prone to natural disasters like floods, hurricanes, or tornadoes? If so, commercial property insurance could protect assets destroyed in a disaster.
Lynne McChristian, senior instructor of finance at the University of Illinois Urbana-Champaign and director of the Office of Risk Management and Insurance Research, proposes business owners ask themselves three key questions to begin assessing their unique business risks:
- What is my personal liability?
- What are the business loss trends for my industry?
- How can I best protect my family, business, and employees with the proper protection?
Additional questions you may ask yourself include: What is the value of the assets needing protection? How much business revenue and expenses are projected for the year? How many employees are there?
When starting the insurance process, collect business records on payroll, accounting, assets, and the number of employees, which may be requested by the insurance professional you’re working with. These documents may show business location, annual sales, tools and equipment, and leasing agreements, among other details.
4. Get quotes from business insurance providers
It’s your choice how you want to gather insurance quotes—work with a broker, comparison shop through a third-party website like Insureon or Simply Insurance, or contact an insurance provider directly.
If you do choose to work with an insurance broker, seek out one that has experience working with businesses similar to yours. If they have a track record of picking and choosing plans that align with your industry, it’s more likely that you’ll end up with an insurance policy that’s beneficial to your needs. If unsure where to start, keep the following in mind:
Use your network
If you know a fellow business owner in your industry, consider reaching out to them directly to see what insurance providers they use. For example, if you’re a yoga instructor and know that you need to sign up for general liability insurance, other instructors can be excellent resources to get recommendations for solid providers.
Do your homework
There is a world of insurance providers out there that cater specifically to small businesses. Research company ratings, accessibility, and customer satisfaction. Or, work with a broker who has experience in your field to help you find your insurance fit.
Consider specialty insurance or gap policies
Specific insurance plans exist to cater to unique workers and workplaces. There are policies available that align with rideshare drivers and insurance plans for boats. Even if you have a small business that doesn’t fit into a traditional mold, there are applicable products, providers, and brokers to help.
McChristian offers these additional tips for businesses seeking the best insurance to fit their needs:
- Conduct an online search and visit your state Department of Insurance website for consumer and business resources and information such as insurance company rankings based on complaints.
- Consider an independent insurance agent who represents multiple insurers or an insurance broker.
- Tap into insurance trade organization resources available to the general public to help in assessing risks. These resources will also help you prepare for a conversation with an insurance professional so you are equipped with the right questions you will want answered. Some to consider include the Insurance Information Institute, the American Property Casualty Insurance Association, and the National Association of Mutual Insurance Companies.
5. Review, customize, and purchase your policy
Read through and review your policy to make sure you fully understand the conditions, exclusions, and other sections of the agreement. Discuss any questions or concerns with an insurance provider or broker—this can be an opportunity to customize the policy to best fit your needs. Next, you’re ready to sign and purchase your new policy.
6. Reassess your policy annually
After signing your first insurance policy, put a reminder on your calendar to revisit the policy a year later, prior to the end of the term date.
“Think of the one-year assessment as a physical checkup for your business,” says McChristian.
She explains that conducting an annual wellness check for your business is important because your risks may change as your business evolves—and any policies must keep up with those changes.
“What you need one year might not be the same the next year,” McChristian says.
For example, you may have more clients than you did a year before, so your insurance may need to be updated to reflect that heightened risk. You have the power to bulk up or pare down your policy each year, as needed.
“The best insurance is comprehensive, acknowledges and covers all your business risks, and protects your personal finances from things that might happen,” McChristian says.
How to get business insurance FAQs
What insurance should you get if you’re just starting a business?
It depends on what type of business you have, but a great baseline is general liability insurance. This generally protects you and your small business in claims of personal injury, property damage, and even libel or slander if your business is sued by a customer or member of the public.
Do you need insurance to run a business?
If you have employees, most state laws require that you have workers’ compensation insurance, although details vary by state.
What are different types of business insurance?
Common types of business insurance are general liability insurance, commercial auto insurance, workers’ compensation insurance, cyber liability insurance, professional liability insurance, business interruption insurance, and commercial property insurance. However, your business may only need certain types of insurance.