Starting your own business requires a significant investment in both time and money. As of 2023, there will be 33 million small businesses operating in the United States, and millions of people continue to take on this challenge. But without the right business insurance plan, you risk losing everything you worked so hard to build.
According to a study published by Next Insurance, 90% of business owners are unsure if they have adequate coverage. To make matters worse, 29% have no business insurance at all, leaving their businesses and investments vulnerable to natural disasters, theft, and lawsuits.
Small business insurance provides important protection for your business, and there are several different types of coverage. Understanding the options available and what to expect in terms of cost will help you find the right coverage for your business (and your budget).
7 common types of small business insurance
A customer walks into your store and while browsing the aisles slips and breaks his arm.
A fire breaks out and spreads through the warehouse, destroying inventory.
Or a thief breaks into your office and steals your laptop.
In either case, there are many unexpected and scary scenarios that can threaten your business.
Similar to personal auto and homeowners insurance, small business insurance acts as a safety net for your business, protecting your business property and assets from common disasters and accidents.
Whether you're the only employee at your company or have dozens of employees, your small business likely needs some form of protection. The type of insurance your business needs depends on the type of business, business size, and location. Below are some of the most common business insurance options.
Business Owner Policy (BOP)
BOP is actually an insurance package that combines several forms of coverage, making it a simple option for small business owners. BOP typically includes general liability, property insurance, and business interruption insurance.
BOPs are often more cost-effective than purchasing each type of coverage separately, and you can customize your BOP with optional add-ons such as cyber risk insurance and commercial auto coverage.
general responsibilities
General liability insurance protects you from financial losses that may result from personal injury or property damage caused by your business. For example, if a customer is injured on your business premises, general liability coverage can help cover the legal costs, the victim's medical bills, and damages resulting from the lawsuit.
product liability
If you manufacture or sell products, product liability coverage protects you from losses arising from the products you manufacture, distribute, or sell. For example, if a product you manufacture injures a customer and requires medical treatment, product liability insurance can help cover legal and medical costs.
professional responsibility
Professional liability insurance covers legal costs and damages related to issues arising from professional negligence or mistakes.
commercial real estate
If your business property, equipment, or inventory is damaged due to storms, fire, theft, etc., commercial property insurance will cover your losses.
home business
According to the Small and Medium Enterprise Agency, more than half of all small and medium-sized businesses work from home. If you run a business from your home, you will need coverage that is separate from your personal homeowners or renters insurance policy.
Home business insurance provides additional protection for business equipment and supplies, as well as protection against liability issues not covered by personal insurance.
workers' compensation compensation
If you have employees, you are usually required to carry workers' compensation insurance. Workers' compensation pays for an employee's medical expenses and a portion of their salary if they are injured or become ill while on the job.
Other types of compensation
In addition to the seven main types of small business insurance, there are many other types of coverage. If your company is in a particular industry or has special needs, you may need additional insurance. Common add-ons include:
- Business interruption: If your business is forced to close due to covered reasons, such as storm damage, business interruption coverage can help compensate for lost income.
- Commercial vehicles: If you have a vehicle that you use for business, such as a delivery truck, you will need separate commercial auto insurance.
- Cyber responsibility: Cyber liability insurance is essential for businesses that sell or store customer information online. If your information, or customer details, is compromised, cyber insurance covers system recovery efforts, notification costs, fines, and identity theft protection costs for affected customers.
How to purchase small business insurance
To purchase small business insurance, follow these steps:
- Think about what kind of insurance you need. Think about what kind of insurance you need. For example, if you own a company car, you'll likely need commercial auto coverage in addition to general liability and professional liability insurance. Additionally, if your business operates in an area prone to natural disasters such as floods or earthquakes, you may need a separate commercial policy for those issues as well.
- Browse around: Rates can vary widely depending on the insurance company. Many insurance companies allow you to request a small business insurance quote online. You enter information about your company's age, revenue, industry, and employees, and your insurance company will provide you with an estimate of the coverage you're looking for.
- Please contact your agent or broker. Once you know the type of insurance you need, you can contact a commercial insurance broker or company agent to get accurate pricing details and purchase insurance.
According to Mark Friedlander, director of corporate communications at the Insurance Information Institute, brokers can be a valuable resource when starting the process.
“A qualified broker can help business owners gather all the information they need to apply for insurance and compare several options and quotes,” he said. “Before hiring [a broker]We recommend that you check the broker's background and experience, the services provided and the fees charged. ”
The National Association of Insurance Commissioners has tools you can use to find insurance agents and brokers in your area.
Frequently asked questions about small business insurance
Do I need small business insurance if I'm just starting a business?
Many people put off purchasing insurance because of the expense, but that can be a costly mistake, according to Chris Rhodes, chief insurance officer at NEXT Insurance.
“Purchasing insurance should be one of, if not the first, thing on your checklist as a new business owner,” he said. “Regardless of your income or investment level, having insurance is essential to protect your future.”
At the very least, simple BOP compensation or other basic forms of compensation are a good starting point.
“As a rule of thumb, small business owners should purchase general liability or professional liability coverage as their first line of defense,” Rose said.
How much does small business insurance cost?
The cost of small business insurance depends on several factors, including your company's location, size, and industry. BOP coverage, which combines common insurance types into one simple policy, typically costs between $40 and $170 per month.
What factors affect small business insurance costs?
Factors that affect cost include:
- Services or products offered: Certain industries and business types, such as construction and transportation, have a higher chance of accidents occurring, so insurance premiums tend to be higher to offset the higher risk.
- position: If you live in an area with a high cost of living or a higher than average crime rate, your premiums will usually be higher.
- size: If you have employees, your premiums will be much higher than if you were an independent contractor. The larger the company, the higher the premium.
Does my state require business insurance?
If you have employees, federal law requires you to carry workers' compensation, unemployment, and disability insurance. However, some states have additional insurance requirements for certain occupations.
For example, Colorado requires doctors to carry malpractice insurance. In Oregon,
Lawyers must carry malpractice insurance through the state's professional liability fund.
Check with your state professional association or regulatory commission to find out what coverage you need.
Do freelancers need business insurance?
Freelancers can benefit from business insurance even if they don't work directly with clients. Basic coverage, including professional liability coverage, can protect you from issues such as lawsuits over mistakes and malpractice.
Take out
Small business insurance is essential to keep your business from being slowed down or disrupted by weather, theft, accidents, lawsuits, and more. To begin purchasing insurance, request a quote from a leading small business insurance company.
“As a general rule, small business owners should get business insurance quotes from at least three companies,” Friedlander said.
If you shop around, you can find the best coverage at the lowest price.
