types of small business insurance

What Are the Types of Small Business Insurance?

2021 saw a massive surge in entrepreneurship, with over 5.4 million new businesses launched or preparing for a launch. Part of the reason for that surge, no doubt, was The Great Resignation. Some people decided that running a company looked better than working for one. 

Of course, building a successful business requires forging a solid foundation for your business. You need sufficient capital, a viable business model, a location to work from, and possibly even employees.

You also need several types of small business insurance. Insuring a business doesn’t just protect you; it also helps protect your employees and customers.

If you’re launching a business soon or aren’t sure if you have all the insurance you need, keep reading for some of the key types of insurance available for small businesses.

General Liability Insurance

One of the most common types of business out there is general liability insurance. This insurance helps cover you against personal injury claims, as well as property damage claims, by customers or other non-employees.

It also helps cover lawsuit costs related to things like:

  • False Advertising
  • Slander
  • Libel

While general liability insurance isn’t absolutely required for every business in every state, it’s a very good idea to get it if you maintain a storefront or customers visit your location.

Commercial Property Insurance

If you own the building your business operates out of or if you lease the property, commercial property insurance is a must-have policy. While specific coverage varies, policies typically cover the property itself from damage in the event of things like:

  • Fire
  • Burglary
  • Wind

The policies also cover the contents of your building or space, including:

  • Inventory
  • Equipment
  • Furniture
  • Tools
  • Personal property left on-site

While your property or building may not suffer under any particular threat, you cannot account for random events or criminal activity. This kind of policy exists to mitigate those risks.

Business Owner’s Policy

A business owner’s policy is often where new small businesses start with insurance coverage. It acts as a bundled policy that provides liability and commercial property insurance, generally at a lower cost than getting individual policies.

The total coverage level is often lower than you see with standalone policies, but you get a break on the premiums in exchange. Depending on who provides the policy, you can often get or can add on other kinds of insurance that we’ll cover below, such as business interruption insurance or cyber insurance.

Business Interruption Insurance

You can think of business interruption insurance as the literal insurance policy for the worst-case scenario. Let’s say that you get flooding in your town or some other kind of disaster that leaves your business unable to operate.

In those circumstances, business interruption insurance helps you stay afloat financially until you can reopen. It will cover things like operating costs, such as:

  • Rent
  • Mortgage
  • Payroll
  • Taxes

In most cases, it will provide you with some compensation for your lost income as well.

Worker’s Compensation Insurance

Worker’s compensation insurance is a bit like liability insurance for your employees. It’s there for when employees get injured or die on the job. Worker’s comp covers a wide range of costs including:

  • Medical treatment
  • Rehabilitation
  • Wage replacement
  • Disability benefits
  • Death benefits

Unlike many forms of insurance, worker’s compensation insurance is non-negotiable for businesses with employees in almost every single state. Of all the states, only Texas lets employers opt out of worker’s compensation.

Employers Liability Insurance

A less familiar type of insurance for most business owners is employers liability insurance. Most workplace injuries fall under the umbrella of worker’s compensation. That program also prohibits employees from suing their employers for most workplace-related injuries.

There are, however a few instances where employees can sue their employers for injuries sustained on the job. If your actions directly result in an injury, the employee can sue.

For example, let’s say that employee tells you that a piece of equipment is malfunctioning. You tell them to use it anyway or they’re fired.

If the employee gets injured using that equipment, it could open you up for a lawsuit. Employer’s liability insurance helps cover the costs in situations like these.

Unemployment Insurance

Unemployment insurance is another one of those non-negotiable types of coverage for businesses with employees. Unemployment is mandated under federal law, although individual states take responsibility for running their own programs. You get this insurance with a combination of federal and state payroll taxes. 

Cyber Insurance

It’s a rare business these days that doesn’t have customer information stored in a database somewhere. That information could range from home addresses to payment information or even medical data. The exposure of that information can have a lot of consequences for a business in terms of fines, negative PR, and lost business.

A cyber insurance policy helps you cover the costs if you end up on the wrong side of a data breach. Some of those costs may include:

  • Providing credit monitoring services
  • Hiring PR specialists
  • Providing notifications
  • Investigating the breach

Unless you’re very confident that you don’t have any customer data stored anywhere on your network, cyber insurance is a smart bet.

Professional Liability Insurance

Professional liability insurance helps cover you in cases where your professional advice or services caused a financial loss to your customers or clients. It’s most common among small businesses that offer services such as:

  • Engineering
  • Accounting
  • Information technology
  • Business consulting
  • Real estate

The insurance is mostly there in case you make a big mistake and get sued by a customer.

Picking Types of Small Business Insurance

Picking the types of small business insurance you need can feel a little overwhelming at first. When in doubt, start with the essentials. Get general liability coverage and, if applicable, commercial property insurance.

A business owner’s policy can also help you cover the basics. Taxes will cover you on unemployment. For worker’s compensation, you’ll either pay the state directly or get a private policy.

Beyond that, you must look at your business and weigh your needs.

Ready for more business management tips? Check out our Business section for more posts.

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