There is no one-size-fits-all approach to the types of insurance for small businesses, but that doesn’t mean there aren’t some basic insurance coverage most small business owners should consider as they look at what they might need for their business. Let’s look at some of the coverage available, consider the circumstances that might make it something you should consider, and how costs are determined.
5 Most Common Types of Business Insurance
Although there are some businesses that require different levels of insurance coverage than other, some of the most common types of business insurance include:
- General Liability Insurance General liability insurance, sometimes referred to as business liability insurance, is designed to help protect your business from claims of bodily injury or property damage. These kinds of claims could arise from accidents that happen during the course of normal business operations.
- Commercial Auto Insurance If your small business uses automobiles, trucks, or vans in the course of day-to-day business, commercial auto insurance provides businesses the same protection, regardless of whether you or one of your employees is behind the wheel.
- Workers Compensation Insurance Workers compensation insurance, often referred to as Workers Comp, is an insurance policy designed to cover employees who are injured or become ill on the job. Although the medical benefits mandated by each state can vary, it is a requirement in just about every state for businesses that have employees.
- Professional Liability Insurance Professional liability insurance, sometimes called errors and omissions insurance (E&O) or professional indemnity insurance, is important coverage for professionals like accountants, consultants, service providers and others to protect their businesses from a mistake that causes a client financial loss.
- Product Liability Insurance Product liability insurance covers financial liability due to physical harm caused by a product failure. For example, if your product hurts someone or damages their property, the liability coverage will help you pay for attorneys, a judgement, or a settlement.
This is not an all-inclusive list of the insurance available to a small business, but is a good place to start. How do you determine what types of insurance coverage your business actually needs?
What Types of Insurance Do You Need?
Every business is different, but let’s talk about some common scenarios that might give you some insight into whether or not you need a particular type of insurance. Business insurance helps cover the costs associated with liability claims or property damage caused during the course of business by you, or even by employees. In the same way individuals purchase homeowners insurance, or other insurance products to protect themselves from accidents and liability, businesses use insurance to do the same thing. Generally most businesses will need some kind of general liability insurance. In addition to general liability, there are other types of insurance the average business might need.
If you use automobiles or other vehicles in your business, you’ll need commercial auto insurance. If you have employees, you’ll need workers compensation insurance in most states. If you’re a professional and offer advice or professional services to your customers, you’ll also need professional liability insurance. There’s also product liability insurance, business income insurance, property insurance, to name others.
How Much Does Business Insurance Cost for Small Businesses?
Because no two small businesses are the same, insurance costs will vary depending on the nature of your business, where your business is located, and the industry you’re in. Here are some of the common considerations an insurance company will take into account when they quote you the cost of insurance for your business:
- The type of insurance: Commercial auto insurance will not have the same cost as professional liability, or example.
- Industry: When an insurance company looks at your business, they are evaluating potential risk based upon the risk of other businesses in your industry. For example, an industrial or construction business might have more inherent risks of accidents than a professional office.
- Risk: Generally speaking, in addition to your industry there are other factors that could influence your risk profile. For example, if you are purchasing commercial auto insurance, your driving record (and your employee’s driving records) will directly impact your premium costs.
- Location: Where your business is located also makes a difference. If your business is located in a high-crime area, you should expect your insurance premium to be higher. Or, if your business is located in an area that regularly floods, you should also expect higher premiums.
- The number of employees: The more employees you have the more annual expense will be associated with insurance like workers comp or professional liability coverage.
- Your business income: Insurance companies assume that the more income your business makes the more there is to insure.
- Your deductible: In the same way a higher deductible lowers your auto or homeowners insurance premium, the same is true with your business insurance.
Some of the circumstances that will influence the cost of your insurance include:
- The nature of your business: What you do or what you sell makes a big difference and could impact the cost of your insurance. For example, professional liability insurance for a heart surgeon (malpractice insurance) is probably more expensive than professional liability insurance for an insurance agent. As a retailer, if you sell something that is easy to steal with a high dollar value like diamond engagement rings, your policy will likely be more expensive than another small business that sells more difficult-to-steal items like a washing machine or a refrigerator.
- Your business location: If your business is located in a hurricane zone, a floodplain, or someplace more likely susceptible to wildfire, your insurance premiums will likely be higher. Recent wildfires in California, for example, have likely impacted the business insurance premiums of a lot of businesses. If your business is located in a higher-crime area, it could also increase the cost of your premiums.
- Your prior claims history: If you’ve had business insurance before and have filed several claims over the years, you might pay higher premiums. For example, if you have delivery drivers with a history of accident or speeding tickets, your commercial auto insurance premiums will likely be higher than if your drivers all had spotless driving records.
There are a lot of variables that could impact the cost of your business insurance (see above), but according to Progressive, you might expect to pay the following for some of the most common business insurance policies:
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What you will pay will be determined by what’s going on in your business, so use the above pricing as only a guide.
What is a Business Owner’s Policy (BOP)?
To reduce the cost of insurance to most small business owners, insurance companies offer bundled policies called BOP Insurance or Business Owner’s Policies. BOP insurance combines property and general liability coverage into one policy to help cover claims resulting from situations like fire, theft, and other liability claims that could arise from your business’ daily operations.
You can also speak to your insurance agent about adding other coverage to your BOP policy to address your other insurance needs because it can be custom-made to fit your industry and your business. This can be a good strategy to reduce your overall insurance costs while ensuring your business has the coverage it needs.
How to Get Business Insurance for Your Business
When looking for business insurance, there are a few things you need to consider when you’re looking for a policy:
- Think about your business and the potential risks you might face. Include the risks of lawsuit or other potential liability.
- Meet with a licensed commercial insurance agent who can help you evaluate those risks and can make suggestions about the type of insurance you may need.
- Shop around. It’s perfectly reasonable to speak with more than one insurance agent to make sure you are getting the coverage you need at the best possible price.
- Do an insurance audit with your agent every year. As your business grows your insurance needs will often change. Make sure your current coverage is appropriate and that the price is right.