Most small business owners aren’t afraid of risk, but they aren’t reckless either. One way they protect themselves from unforeseen risk is with small business insurance. This insurance is designed to protect their financial assets and physical property from lawsuits, property damage, theft, vandalism, loss of income, and injuries or illness to their employees.
In addition to the health insurance many small businesses offer their employees, there are other types of commercial insurance business owners rely on (much like the homeowner insurance policies people generally rely on to protect their homes and property) to protect their business assets. Those insurance policies include:
- Commercial Liability Insurance
- Product Liability Insurance
- Professional Liability Insurance
- Commercial Property Insurance
- Commercial Auto Insurance
- Worker’s Compensation Insurance
A formalized business structure like an LLC or a Corporation offers some protection for your personal assets in the event of a lawsuit, but doesn’t protect your business assets. Depending on the nature of your business, the type of insurance you need may vary, but these insurance policies offer additional protection by filling in the gaps to protect your business assets.
Every business with employees is required by the federal government to have worker’s compensation insurance, unemployment insurance, and disability insurance. Some states may also require additional insurance so you should visit your state’s website to find out if there are any additional insurance requirements in your state.
Why do I need small business insurance?
Although liability insurance isn’t a requirement, regardless of how careful you are, accidents do happen and having the right type of insurance coverage can make a difference in how your business is able to address those financial needs when they happen. Depending on the nature of your business, it might also be a good idea to have liability coverage in addition to a general policy.
Are small businesses required to have insurance?
The federal government requires that small businesses with employees carry worker’s compensation insurance, unemployment insurance, and disability insurance. There may also be additional insurance requirements required by the state where you do business. This information should be available on your state’s website.
What Is a Business Owners Policy (BOP)?
A business owner’s policy (BOP) combines the basic policies that cover property and liability risks into one package, or bundle. These policies are generally targeted at small- to medium-sized businesses and typically include the property, business interruption, and liability insurance for businesses that fall within certain categories.
You should consult with your insurance agent to determine if a BOP policy makes sense for your business.
What kind of small business insurance do I need?
The insurance needs of a small business can vary, but in addition to the insurance required by the federal government or your state, here is a brief description of the different types of insurance available to your business as described by the SBA.
|Type of Insurance||Business Type||What It’s For|
|General Liability||Any business||This coverage protects against financial loss as a result of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, settlement bonds, or judgments.|
|Product Liability||Businesses that manufacture, wholesale, distribute, and retail a product||This coverage protects against financial loss as a result of a defective product that causes injury or bodily harm.|
|Professional Liability||Businesses that provide services to customers||This coverage protects against financial loss as a result of malpractice, errors, and negligence.|
|Commercial Property||Businesses with a significant amount of property and physical assets||This coverage protects your business against loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience, and valalism.|
|Home-Based Business||Businesses that are run out of the owners personal home||Coverage that’s added to homeowner’s insurance as a rider can offer protection for a small amount of business equipment and liability coverage for third-party injuries.|
|Business Owner’s Policy||Most small business owners, but especially home-based business owners.||A business owner’s policy is an insurance package that combines all of the typical coverage options into one bundle. They simplify the insurance buying process and can save you money.|
After you consider the type of business you feel may be needed by your business, you should speak with an insurance agent to compare terms and prices.
What does small business insurance cover?
Property damage, lawsuits, lost business income, medical costs, libel, slander, settlement bonds, and judgements may all be covered by the appropriate business insurance. Because the unique risks associated with different businesses are not all the same, businesses often buy more than one coverage which can be combined into a single policy.
For example, the professional liability insurance (or malpractice insurance) needed by a physician will likely not be the same type of insurance a plumbing business might need.
To determine what type of insurance best meets your business’ needs, you can take these four steps to determine what’s right for you and your business:
- Evaluate your risk. Think about the types of accidents, lawsuits, or other disasters that could cause damage or loss to your business. A business in Florida, for example might need insurance in the event of a hurricane, while a similar business in Oklahoma City might not.
- Find a licensed commercial insurance agent. A commercial insurance agent can help you find a policy that will match your business needs. Be aware, they are paid a commission by the insurance company when they sell you an insurance policy.
- Shop around. Prices, terms, and benefits can vary widely from company to company. You should compare rates, terms, and benefits from different companies and different agents to make sure you get the best policy at the best possible price.
- Revisit your insurance needs every year. Your insurance needs will likely change as your business grows, an annual review is an important part of making sure your business is adequately insured.
What Does Small Business Insurance Exclude?
As mentioned above, many businesses choose to combine coverage when they create a policy because not all insurance coverage types cover the same things. The property damage coverage associated with your business liability policy may only pay up to the actual value of the damaged item. You may need to add a full replacement cost rider to your policy to make up the difference between actual value and full replacement cost. This could be particularly important if your business operates with older equipment.
If your business suffers from a flood or other event that damages a substantial part of your inventory, a general liability policy would cover the cost of the inventory that was lost, but not cover the company’s orders it was unable to fill because of the loss of the inventory. You would need business interruption coverage for that.
Another example is your liability insurance for company vehicles. You will need a separate auto insurance policy to protect your company against lawsuits related to automobile claims. And, depending on the policy, it may or may not cover vandalism to a fleet of company vehicles so be sure to ask. What’s more, employees with a bad driving record may not be covered.
Make sure you discuss with your insurance agent all the things that are covered and those that are not to make sure you purchase the right insurance coverage.
How much does small business insurance cost?
Although costs may vary depending on the insurance company, the type of insurance, and your individual business, Progressive Insurance gives us an idea of average costs (these are just estimates, you’ll want to talk to your insurance agent to get a quote).
|Policy Type||Average Cost||Median Cost|
|Business Owner’s Policy (BOP)||$80/month||$62/month|
Which business insurance policies protect against the coronavirus (COVID-19)?
If your business is suffering from the aftermath of the economic crisis caused by the COVID-19 pandemic, it’s possible your property insurance coverage will include business interruption coverage. You’ll want to speak with your agent to see if it will cover the business interruption caused by the virus. These policies normally cover interruption due to hurricane, fire, wind damage, or theft, but might not apply in this case.
Many insurance companies will review your claim and make a decision on a case-by-case basis.
Some property insurance includes the ability to reduce or remove coverage on a building that has been vacant for 60 days or more, but many companies (including The Hartford) have suspended enforcement of their vacancy conditions for buildings that were not vacant before a state closure order was issued.
Most worker’s compensation insurance will continue to cover your employees even if they work from home.
If you have questions about commercial insurance for your business, please consult with your insurance agent to make sure you have the right policy. This article is not intended to offer advice on individual insurance needs, but rather as an overview of what is available.