Pause for a moment and count how many insurance policies you have. You may have as many as four: homeowners or renters insurance, health insurance, auto insurance, and life insurance. Financially protecting the things that are most valuable to you from “what-ifs” like a fire, illness, or accident is a normal part of life.
It’s just as important to protect your small business from what-ifs—like a lawsuit, robbery, or data breach. Whether you’re just starting out or are growing your business, this guide will set you on your way to getting adequate insurance protection to minimize risk for your company.
What is business insurance?
Business insurance, also known as commercial insurance, is a range of insurance policies you buy for your company, rather than for yourself as an individual. Business insurance helps ensure that your company does not have to pay the entire cost associated with covered events—including accidents, natural disasters, and lawsuits. The insurance will help pay for the damages or losses, as per your policy.
A variety of policies fall under the umbrella of small business insurance, and there is no one-size-fits-all option. You can tailor your exact level of coverage depending on your budget and needs, with policies covering everything from general liability insurance to crime insurance.
17 types of business insurance
There are many types of small-business insurance available, and you can mix and match policies to get exactly what you need. Some are required by law, but most are optional. Here’s a breakdown of various business insurance policies and the risks they cover.
- Workers’ compensation insurance
- Unemployment insurance
- Disability insurance
- Commercial general liability insurance
- Business interruption insurance
- Cyber liability insurance
- Crime insurance
- Employers’ liability insurance
- Key person insurance
- Product liability insurance
- Professional liability insurance
- Commercial property insurance
- Flood, wildfire, earthquake riders
- Commercial auto insurance
- Homeowners/renters insurance riders
- Business owner’s policy (BOP)
- Commercial umbrella insurance
1. Workers’ compensation insurance
Workers’ compensation insurance covers your employees’ medical expenses from injuries that happen while they’re on the job. The policy also compensates for lost wages due to a disability from work injuries and provides other financial help for the workers’ families. Businesses with employees are generally required to have workers comp insurance.
2. Unemployment insurance
Unemployment insurance, which the federal government requires for every business with employees, works differently than all other types of small business insurance. Instead of buying a policy, you pay a tax to the government on behalf of each employee. If an employee loses their job for a covered reason, unemployment insurance will support them in the short term while they look for another job.
3. Disability insurance
Disability insurance temporarily compensates businesses for lost income if an employee is not able to work due to a disability, even when the disability is not caused by a work injury. Businesses with employees are required to have disability insurance.
4. Commercial general liability insurance
Think of general liability insurance as a standard type of insurance that protects you from being responsible, within the limits of the policy, for harm your business might cause a third party. Liability risks that are typically covered include bodily injury, property damage, basic rights infringement, and reputational harm like libel or slander. For example, if a customer slips and injures themselves in your store, general liability insurance will help cover the hospital bill.
Note that general liability insurance has some major exclusions (for instance, it doesn’t cover unemployment or workers’ compensation), so additional policies are necessary to fill in those gaps.
5. Business interruption insurance
Imagine you have a surfing apparel business in coastal Florida, and a hurricane knocks a tree into your store front, damaging the building and some of your inventory. If the damage to the building prevents your business from functioning as usual, it may lead to delays that can cause you to lose income. While commercial property insurance might help cover the cost of the damaged inventory, business interruption service (also known as business income insurance) can repay you what you would have made, as long as the loss is covered by your policy.
6. Cyber liability insurance
Cyber liability insurance protects your business against claims involving cybercrimes. Three common types of cybercrimes reported by victims are phishing scams, non-payment/non-delivery scams, and data breaches. Businesses are also at risk of ransomware attacks.
If a small business is a victim of a cyberattack, the specialized repairs and legal fees can be expensive. According to the FBI, in 2021, the total cost of cybercrimes against small businesses was a whopping $2.4 billion. Cyber liability insurance helps mitigate losses from a variety of such cyber incidents.
7. Crime insurance
Crime insurance covers losses that arise from robbery, burglary, larceny, forgery, and embezzlement, as well as employee theft or dishonesty. If there was a break-in at your warehouse or store and some of your products or equipment were stolen, crime insurance would cover your losses.
8. Employers’ liability insurance
Employers’ liability insurance (or employment practices liability insurance) protects you from claims from your current or former employees that involve employment-related issues like discrimination, sexual harassment, and wrongful termination.
9. Key person insurance
Key person insurance is a life insurance policy for your business’s important employees, including the owner, where the business is the beneficiary. When deciding who to cover under this policy, identify the people most critical for business operations. Will losing them impair the functioning of your business to the point that you lose revenue? How costly will it be to replace them?
If your lead designer, chief engineer, or operations manager keeps everything running like clockwork, and that person dies, key person insurance can help the business recoup the costs of hiring and training a replacement. Or, if the company can no longer operate without that individual, key person insurance will help cover the expenses of shutting the business down, including paying off debt and providing severance to other employees.
10. Product liability insurance
Product liability insurance covers your business in case of lawsuits if you manufacture or sell products that cause property damage or bodily injury. If one of your products harms a customer—even if the injury is the result of improper use—your business could be held liable. Product liability insurance helps protect your company from the financial risk of a product liability claim.
11. Professional liability insurance
If your product is not a physical item but a professional service, you can still face a legal claim for damages as a result of your errors, bad advice, malpractice, or negligence. Professional liability insurance, also called errors and omissions insurance, addresses these types of risk.
12. Commercial property insurance
Commercial property insurance is like homeowners or renters insurance for your house, but for your business property. It protects physical assets like buildings, equipment, product inventory, furniture, and even personal property from the common risks of fire, smoke, storms, and vandalism. If you rent your business property, the landlord is typically responsible for insuring the building itself, but you’ll still need commercial property insurance for your equipment and inventory.
13. Flood, wildfire, earthquake riders
If your business is located in an area prone to natural disasters like floods, wildfires, or earthquakes, you may need to get add-on coverage, or a rider, to your existing policy to protect your business from property damage caused by those events.
14. Commercial auto insurance
If you use any kind of a car, van, truck, or bus for your business, commercial vehicle insurance covers both medical expenses that may occur from an accident, and the damage to the vehicle itself. Make sure to get the policy issued in the name of your business and not just in your name. And if you are using your personal vehicle for business purposes, make sure you have the right coverage. Check with your insurance agent to determine whether or not you need commercial auto insurance.
15. Homeowners/renters insurance riders
Many people work from home, including small-business owners. If you use your home as your place of business, adding a rider to your homeowners/renters policy helps cover your work equipment and some liability risks, like if you have a business visitor and they fall and injure themselves in your home.
16. Business owner’s policy (BOP)
If your business faces the typical set of risks—like property damage, legal liability for damages to non-employees, and business interruption—an insurance package deal known as a business owner’s policy bundles the common coverage options to save you time and money.
17. Commercial umbrella insurance
Commercial umbrella insurance is an add-on that covers the excess if you have a claim that goes over the coverage limit of your primary business insurance, commercial auto insurance, and/or workers’ compensation insurance (but not your commercial property insurance). It can be especially beneficial in a worst-case scenario.
Say a delivery driver gets injured picking up a shipment from your warehouse, and they also damage a weight-bearing pillar, causing part of the roof to collapse and injure customers. The cumulative claims from that incident might exceed your general liability insurance maximum. Commercial umbrella insurance would cover the overage, up to the policy’s limit. This type of insurance is especially appealing to brick-and-mortar businesses that are open to the public, businesses that rely on delivery drivers, and businesses that do work on client property.
How to choose the right insurance for your business
You can determine the types of business insurance policies you need based on the individual characteristics of your business, such as whether you have employees, make a product, operate a vehicle, or lease or own a building. Select the ideal combination of insurance policies by following these steps:
- Identify risks
- Find a trusted insurance agent
- Check what business insurance is required by law
- Shop around
- Check exclusions
- Deduct premiums from taxes
1. Identify risks
Put together a list of types of coverage you want to get based on your business insurance needs, then calculate the amount of coverage you want. To determine what kinds of risks your business can face, you can start by answering a few questions.
- Does your business have employees?
- Does your business have storefronts, offices, or manufacturing facilities?
- Do you produce products or provide services?
- Are you using any vehicles?
By answering these questions, you can get a good idea of what kinds of policies to consider.
2. Find a trusted insurance agent
Licensed insurance broker-agents can help you choose the best business insurance policies and providers. Not only can they advise you on the types of insurance that are suitable for your business, they can pull quotes from multiple insurance providers and walk you through the business owner’s policy bundles. When choosing an insurance agent, enlist your network, ask for referrals, talk to neighboring businesses, look up ratings online, and check professional associations to vet the agent before you commit. Keep in mind, a broker may or may not charge a fee for their professional services—and those fees are usually negotiable and non-refundable.
3. Check what business insurance is required by law
Federal and state laws may require certain types of coverage for specific types of businesses, so start by checking with your local Small Business Administration office. If you are using an attorney to help you form your business entity, ask about what insurance is required by law. HR advisers can also help you find the right insurance policies as your business evolves in size and scope.
4. Shop around
Compare quotes from different small-business insurance providers to get the best cost/value ratio. Carefully consider the policies’ deductibles—the amount you’ll have to pay out of pocket if you file a claim—when assessing business insurance costs. Usually, higher deductibles pair with lower premiums.
5. Check exclusions
Pay attention to the risks that are excluded from the policies so you’re not caught off guard if a non-covered event happens. Consider purchasing umbrella insurance, additional policy, or rider to cover any events excluded or not fully covered by your other policies.
6. Deduct premiums from taxes
Whether you run a sole proprietorship, LLC, or S corporation, your ecommerce business may be able to deduct eligible business insurance premiums. Business deductions lower a business’s taxable income. According to the IRS, “You can generally deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession.” You can check what specific premiums are tax-deductible.
Business insurance FAQ
Can I get insurance just for certain aspects of my business?
Yes. Small business insurance is customizable, and you can get specific coverage tailored to the needs of your unique business. Remember, some business insurance policies are mandated by state or federal law, so start by checking what coverage you must have and then add on from there.
How does business insurance protect against financial losses?
If your business incurs a financial loss from a covered event, you’ll be able to file a claim with your insurance company. Once your claim is processed, you’ll get reimbursed (or compensated in another way, according to your policy) for the approved amount.
Is business insurance coverage required by law?
Most states require businesses with employees to have workers' compensation, unemployment, and disability insurance. Your state may require additional coverage for specific types of businesses. Check with your local Small Business Administration office, or ask your business’s lawyer or HR adviser what insurance is mandatory.