To run a successful business, you need to take some risks. But, risk-taking doesn’t mean you don’t do a little risk management for small business to protect your company from losing money. While you can’t avoid every threat, some types of business insurance can help lessen the financial blow when the unexpected happens.
Not sure what’s available? Read on to learn more about your small business insurance coverage options.
What is business insurance coverage?
Business insurance coverage can protect a company from financial losses related to qualifying events, like property damage, injury, or lost business income. Like home insurance or car insurance, insurance providers reimburse you for part or all of your losses if your business is impacted by covered events.
Here’s a simple rundown of how business insurance works:
- Sign up
- Pay an insurance premium
- Experience a covered event
- Receive compensation (after paying your deductible)
You can choose different types of business insurance based on your industry and needs. The insurance you sign up for determines what potential events your business is protected against.
Types of business insurance
Don’t wait to find out what types of insurance you need until after you suffer a loss. Prevent an expensive disaster by safeguarding your business early on.
You might be wondering What type of business insurance do I need? Before signing up for any and all available insurance, assess your business’s major risk factors. Then, understand the basics of what each type of small business insurance covers.
Take a look at these nine types of small business insurance you may need to protect your company.
1. General liability insurance
General liability (GL) insurance protects your business if you’re faced with property damage, bodily injury, or personal injury claims caused by operations. Mistakes in your business operations could physically harm someone or their property, damage someone’s reputation, or interfere with privacy.
General liability insurance helps cover:
- Medical costs
- Property damage costs
- Legal fees
For example, you own a construction company. If business operations damaged a customer’s property, general liability insurance would cover the cost of the damages.
Keep in mind that general liability insurance won’t cover every type of claim. Check with insurance companies to learn what kind of claims they’ll cover.
You can get general liability insurance on its own. Or, you can bundle it with property insurance under a business owner’s policy insurance plan (explained later).
Who should get this type of insurance? Consider safeguarding your business with general liability insurance if you see clients in person, have access to their properties, or represent their businesses.
2. Errors and omissions insurance
Errors and omissions (E&O) insurance, or professional liability insurance, covers client claims made against your business. If you provide a service that doesn’t meet the promised results, a client might sue you.
E&O insurance covers:
- Legal fees
- Court costs
Who should get this type of insurance? You should have E&O insurance if you provide recommendations, guidance, advice, or services. Common business owners that have this type of business insurance coverage include doctors, lawyers, accountants, and event planners.
3. Business interruption insurance
A business interruption insurance, or business income insurance, plan is coverage that replaces lost income if disaster (e.g., storms, theft, etc.) strikes and you need to temporarily close.
Business interruption insurance plan may cover expenses such as:
Generally, interruption insurance is part of a business owner’s policy insurance. If you’re interested in defending your company against disasters, talk with insurers to see how much interruption coverage is available.
Who should get this type of insurance? Business owners who have physical business locations typically opt for interruption insurance.
4. Cyber insurance
Cyber insurance is coverage that can help protect business owners deal with cyberattacks and hacking threats. Keep in mind that it does not prevent cyberattacks—it only helps you with the costs if you fall victim to them.
This type of business insurance covers the cost of:
- Addressing cyberattacks
- Resolving cyberattacks
- Recovering from cyberattacks (e.g., data restoration costs)
Who should get this type of insurance? Businesses that deal with any kind of personal identifiable information (PII) might consider cyber insurance.
5. Workers’ compensation insurance
Workers’ compensation is a state-mandated insurance that protects businesses if an employee gets sick or injured on the job. Most states require that businesses have this type of business insurance.
Workers’ compensation covers:
- Wage replacement for time away from work
- Medical benefits
Generally, you can obtain workers’ compensation insurance through a private insurance company. However, you must obtain workers’ comp coverage through a state fund if you do business in North Dakota, Ohio, Washington, or Wyoming.
Who should get this type of insurance? Typically, any businesses with employees must sign up for workers’ compensation insurance.
6. Commercial property insurance
Commercial property insurance protects your business’s tangible assets from losses. What are tangible assets? They are the physical assets that add value to your company, including your building, inventory, signage, and equipment.
In business, fire, storms, or other natural disasters could cause damages to your physical property. Theft or vandalism could also damage your business’s property.
Commercial property insurance helps cover the cost of:
- Replacing damaged assets
- Repairing damaged assets
- Rebuilding damaged assets
Who should get this type of insurance? Businesses with physical assets should consider getting commercial property insurance.
7. Home-based business insurance
A home-based business insurance plan covers business losses that occur in your home. Home-based business insurance goes beyond homeowner’s or renter’s insurance to cover business losses.
A home-based business insurance policy covers:
- Business equipment
- Liability (e.g., legal fees)
Who should get this type of insurance? Home-based businesses may consider signing up for this type of small business insurance. You might also look into home-based business insurance if people (e.g., clients, employees, partners) enter your home for business activities.
8. Commercial auto insurance
Commercial auto insurance covers vehicles (e.g., cars, trucks, vans) you use to run your business. This type of small business insurance is similar to personal auto insurance.
These types of policies cover:
- Personal injury
- Physical damage
- Uninsured motorists
Commercial auto insurance offers different options in eligibility, coverages, and limits than personal policies. You can have many vehicles covered under a commercial auto insurance policy.
Who should get this type of insurance? You might consider commercial auto insurance if you frequently use vehicles to operate your business. Examples of businesses with this type of small business insurance include truck, plow, and delivery companies.
9. Business owner’s policy insurance
Business owner’s policy (BOP) insurance bundles basic coverage for property and liability risks into one package.
A BOP can cover costs associated with:
- Property damage
- Natural disasters
- Business interruption
BOP insurance does not include coverage for E&O and commercial vehicles. Workers’ compensation, health, and disability insurances are also not part of a BOP. You can add on other types of insurance (like the ones listed in this article!) to a BOP.
Who should get this type of insurance? Any business owner should consider getting business owner’s policy insurance. Under a BOP, you get other types of insurance (e.g., general liability, business interruption, and property) bundled together.
This article has been updated from its original publication date of May 12, 2016.