Insurance for small business owners: Essential policies to consider

Navigating the realm of insurance for small businesses owners is paramount, as it can be the decisive factor between prosperity and setback when unforeseen challenges arise.

As small enterprises strive towards profitability, they encounter scenarios that pose potential financial risks. Mishaps and errors can lead to costly legal battles, while natural disasters or human-induced incidents have the potential to erode hard-earned revenues. This underscores the critical importance of having adequate insurance coverage.

In this segment of our client education series, Insurance Business delves into the intricacies of insurance for small businesses. We will explore the mechanics of this coverage, identify indispensable policies, and provide insights on how businesses can discern their specific protection requirements. Insurance professionals are encouraged to share this resource with small business proprietors to facilitate informed decisions regarding their insurance needs.


Do you need insurance as a small business owner?

For small businesses and startups operating within constrained financial parameters, the temptation to forgo certain coverages, particularly those not mandated by law, can be palpable.

However, these enterprises frequently encounter situations necessitating bold leaps of faith. While such circumstances promise growth opportunities, they concurrently expose businesses to unforeseen risks – underscoring the imperative of maintaining a financial safety net.

Small business insurance serves as a shield against adversities that could otherwise inflict substantial financial harm, potentially jeopardizing the company’s viability. Implementation of appropriate policies is pivotal in expediting the recovery process post-incident.

Moreover, robust coverage enhances a company’s reputation and credibility, as clients often gravitate towards businesses perceived to have sound financial protection measures in place.

While procuring insurance constitutes a crucial component of risk mitigation for small businesses, complementing coverage with effective risk management strategies stands as an indispensable approach to safeguarding assets and financial stability.

How to get an insurance policy for a small business?

Acquiring an insurance policy for your business is a straightforward process. However, the pivotal step for any business owner is to select the insurance policy that aligns most closely with their business’s requirements. This necessitates a comprehensive understanding of the potential risks confronting the business.

For instance, a small business with vehicle assets should contemplate vehicle insurance to safeguard against potential losses or damages resulting from accidents, natural disasters like floods, vandalism, and related occurrences.

Conversely, proprietors in low-risk sectors such as consulting, tutoring, or dropshipping might explore cost-saving opportunities by bundling their insurance needs within a Business Owner’s Policy (BOP), combining General Liability Insurance with other essential coverages.

To embark on securing insurance for your small business, the U.S. Small Business Administration (SBA) outlines the following steps:

1. Identify potential risks: Understanding the threats your business faces—whether from natural disasters, accidents, or other hazards—is imperative before procuring insurance.
2. Gather pertinent documentation: Essential business information, including gross annual sales, employee count, equipment inventory, building specifications, and payroll details, serves as foundational data for insurers to tailor suitable coverage options.
3. Engage a reputable agent: Selecting a trustworthy business insurance agent is crucial, ensuring that your needs take precedence over mere commission incentives.
4. Compare insurance offerings: Exploit the competitive marketplace by evaluating and contrasting insurance policies until identifying an insurer that aligns with your budget and coverage requirements.
5. Procure your insurance: Armed with comprehensive information and thorough comparisons, proceed to secure the small business insurance that best suits your needs.
6. Adapt as your business evolves: As your business expands and undergoes changes, regularly reassess your insurance needs with your agent to accommodate new assets or operational enhancements effectively.

What types of insurance policies do small businesses need?

Given the unique array of risks and obstacles encountered by each small business, there exists no universally applicable small business insurance policy. The requisite coverage for a company hinges on various factors such as its operational nature, industry sector, and workforce size.

Providers of small business insurance extend an array of policies tailored to shield companies from diverse risks. While the options are multifaceted, industry experts highlight several indispensable policy types crucial for businesses to sustain their operations amidst unforeseen accidents and disasters.


1. General liability insurance

As outlined by the US Small Business Administration (SBA), general liability insurance stands as a cornerstone coverage essential for small enterprises. Also known as business liability or public liability coverage, it serves to shield companies against claims arising from bodily injury or property damage attributable to their business operations. Additionally, these policies extend coverage for claims concerning reputational harm, encompassing instances of libel, slander, and copyright infringement.

It’s imperative to note that small businesses don’t directly receive compensation from this coverage; rather, payouts are allocated to the affected third party. Absent general liability insurance, companies would be responsible for covering claims expenses directly from their own resources.

2. Professional liability insurance

Professional liability coverage serves as a crucial safeguard for small businesses against work-related claims, encompassing various scenarios such as inaccurate advice, misrepresentation, negligence, and personal injury including libel or slander.

Referred to as errors and omissions (E&O) or malpractice insurance, this coverage extends protection against legal expenses and settlement costs arising from service-related errors and omissions, breach of contract, unfinished work, and budget overruns, among other liabilities.

Notably, professional liability insurance provides coverage for all employees of the business as well as the company itself. While not always mandated by law, securing this form of coverage is imperative for many small enterprises, particularly those engaged in expert or advisory services. This category includes:

3. Product liability insurance

Your statement regarding product liability coverage is accurate and succinct. This insurance indeed serves as a vital safeguard for businesses involved in product sales, offering protection against lawsuits stemming from customer claims of losses or injuries resulting from the product. Moreover, apart from covering legal defense costs, this policy offers compensation in scenarios where the business is deemed liable.

4. Commercial property insurance

Commercial property insurance is meticulously crafted to mitigate disruptions in the daily operations of small businesses. It offers compensation for damages or losses incurred by various assets, including:

– The property or building in which the company conducts its operations
– Equipment and technology utilized by the small business
– Inventory comprising products and materials stored and sold by the company

In addition to covering physical assets, certain policies also provide indemnification for a portion of lost income arising from damage that impedes the business’s regular operations. Often known as business property or commercial building insurance, this coverage is frequently mandated in commercial leasing agreements.

5. Commercial auto insurance 

Commercial auto insurance is a specialized form of coverage tailored for vehicles utilized for business purposes. Functionally akin to personal auto insurance, it primarily safeguards company cars, commercial trucks, and vans. The coverage typically encompasses:

– Bodily injury liability: Providing coverage for injuries caused by the driver to another person, along with legal expenses in the event of a lawsuit.
– Property damage liability: Offering compensation if the business’s vehicle causes damage to another person’s property, including legal defense costs incurred during litigation.
– Combined single limit (CSL) liability: Establishing an aggregate limit for bodily injury and property damage claims against the business, as opposed to separate limits.
Personal injury protection (PIP): Addressing medical expenses for the driver and passengers resulting from accidents covered by the policy, with PIP being mandatory in no-fault insurance states in the US.
– Collision insurance: Covering damage to the commercial vehicle in the event of collisions with other vehicles or objects.
– Comprehensive insurance: Extending coverage for damage to the commercial vehicle arising from fire, flood, theft, vandalism, and other specified perils.
– Uninsured motorist (UM) coverage: Providing compensation for injuries sustained by the driver and passengers if they are involved in an accident with an uninsured driver or a hit-and-run incident.
– Underinsured motorist (UIM) coverage: Addressing medical expenses incurred by the driver or passengers of a commercial vehicle if they are hit by someone whose policy does not sufficiently cover all costs.

In certain US states, commercial vehicle operators have the option to procure UM and UIM coverage separately. Moreover, tailored business-specific coverage options, including those for lost business income, are available for commercial vehicle operators.


6. Workers’ compensation insurance

Small businesses with even a single staff member are legally obligated to obtain workers’ compensation insurance. This essential coverage reimburses the expenses associated with medical treatment and a portion of lost wages for employees who sustain injuries or illnesses while carrying out their job duties. Additionally, it shields small businesses from the financial burden of covering costs related to work-related ailments and injuries independently.

Workers’ compensation insurance offers various forms of protection, as outlined in the table below:

7. Health insurance

Under the Affordable Care Act (ACA), businesses with over 50 full-time employees in the USA are mandated to provide health insurance for their workforce. Similarly, many other countries have established standard thresholds for this requirement. For entities with fewer than 50 employees, the ACA extends the Small Business Health Options Program (SHOP) as a viable coverage option.

Health insurance providers furnish small businesses with essential healthcare coverage, alongside supplementary services such as Medicaid and Medicare policies, long-term care insurance, dental coverage, and vision benefits. In the United States, the top 10 private health insurance companies collectively oversee nearly two-thirds of the market share.

Read more: Insurance marketplace: Everything your clients need to know

8. Business interruption insurance

Business interruption insurance, often abbreviated as BI, is crafted to shield companies from financial setbacks stemming from disruptions in their operations due to covered perils. This coverage, also known as business income coverage, reimburses the operating expenses incurred during the temporary cessation of business activities. These expenses typically encompass:

– Potential revenue losses
– Commercial space mortgage or rent payments
– Repayments on business loans
– Employee salaries
– Tax obligations

Certain BI policies may extend coverage to additional expenses incurred as a result of the closure, such as the expenses associated with establishing a temporary operational site or providing training to employees on the use of new equipment.

9. Cyber insurance

Cyber insurance serves to safeguard small businesses from financial ramifications arising from cyber incidents. Typically, these policies offer two primary types of protection:

1. First-party coverage: This aspect compensates the business for the financial losses incurred directly due to a cyber incident.
2. Third-party coverage: This facet shields the business from financial liabilities stemming from lawsuits initiated by third parties—such as customers, employees, and vendors—for damages resulting from a cyberattack on the business.

Here’s a concise overview of the coverage provided by these policies.

Learn simple and practical ways in which you can protect your small business against cyber threats in our cybersecurity guide.

10. Business owners’ policy (BOP)

Tailored for small and mid-sized businesses, a Business Owner’s Policy (BOP) consolidates various essential insurance coverages that companies typically require, such as:

1. General liability insurance
2. Commercial property insurance
3. Business interruption insurance
4. Workers’ compensation insurance

Certain insurers offer the flexibility for small businesses to augment their coverage options at an additional cost, based on their specific needs. BOP presents a cost-effective solution compared to procuring individual insurance policies separately.

Below is an overview of the diverse insurance policies that business owners may wish to consider to ensure financial protection for their small businesses in the event of accidents and disasters.


How much does insurance for small businesses cost?

The determination of premium prices for each type of small business insurance is highly influenced by the coverage provided, leading to substantial variations.

For instance, the rates for professional liability coverage are assessed based on several factors:

1. The industry and its associated risks
2. Geographic location of the business
3. Coverage limits and deductible amounts
4. Business tenure
5. Number of employees
6. Past claims history

Insureon, an independent insurance marketplace for small businesses, has compiled data indicating that the median cost of professional liability premiums stands at approximately $59 per month, equating to around $713 annually. The majority of small business clients allocate between $500 and $1,000 annually for errors and omissions (E&O) coverage, with nearly a fifth spending less than $500.

Conversely, general liability coverage commands a median premium of $42 per month, translating to approximately $500 annually, regardless of policy limits.

Commercial property insurance for small businesses

Commercial property insurance premiums are subject to various influencing factors:

1. Age of the property: Older buildings typically command higher rates compared to newer commercial spaces, often due to the incorporation of modern safety features in newer constructions.

2. Location: Properties situated in regions with a history of numerous claims tend to incur higher insurance costs.

3. Size of the building: Larger commercial properties generally entail higher premiums, given the increased expense associated with rebuilding and repair.

4. Equipment and machinery: Businesses utilizing specialized equipment may face higher insurance rates due to the potential difficulty in replacing such assets. Similarly, companies with older or outdated machinery may incur elevated premiums.

5. Safety and security measures: Implementing security enhancements such as closed-circuit television (CCTV), monitored alarms, security patrols, deadlocks, and reinforced entry points can contribute to reduced premiums for businesses.

6. Total value of contents: Premiums are influenced by the aggregate value of equipment, fixtures and fittings, furniture, and stock housed within a commercial property.


Workers’ compensation insurance for small businesses

For workers’ compensation insurance, premium factors encompass:

1. Industry type
2. Job classification codes, reflecting the risk level associated with employees’ tasks
3. Experience modification rating, derived from the company’s payroll and historical workers’ comp claims
4. Workplace safety protocols

According to Trusted Choice, small businesses typically pay an average of $47 monthly or approximately $560 annually for workers’ compensation coverage.

On the other hand, premiums for cybersecurity insurance are influenced by factors such as the business’s size, nature, and location. Data from AdvisorSmith indicates that the average annual cost of cyber insurance in the US is approximately $1,589, translating to around $132 per month.

What should small businesses need to consider before buying insurance?

Given the pivotal role insurance plays in safeguarding small businesses, industry experts strongly advocate for a thorough comparison of options from various providers to ensure optimal protection at the most competitive rates. Here are the critical factors that specialists emphasize small businesses should prioritize when selecting suitable insurance policies:

1. Coverage options: While many policies may appear similar across insurers, small businesses should inquire about customizable or extended coverage options to align with their specific needs.

2. Policy limits: Ensuring that the coverage limit of each policy adequately encompasses the full value of protection required is paramount.

3. Premiums and deductibles: Experts caution against opting for the cheapest policy available, as this may lead to significant financial repercussions in the long term. Instead, businesses should seek policies offering optimal value relative to coverage and risk level, considering both premiums and deductibles.

4. Claims reporting: Streamlined claims processing is essential for minimizing financial losses and operational disruptions. Businesses should familiarize themselves with the claims reporting process outlined in the policy’s product disclosure statement.

5. Company reputation: Prioritizing insurers with a proven track record of customer satisfaction and ethical business practices is advisable.

6. Financial stability: Ensuring the insurer’s financial robustness is crucial to guaranteeing their ability to fulfill claims obligations.

For small business owners in search of suitable coverage, which policies do you consider essential? Share your insights in the comments section below.

Choosing the right insurance policies for small businesses

Choosing the optimal insurance for your small business can indeed be a complex endeavor, particularly given the array of options outlined above.

For those seeking guidance, engaging with an insurance broker, also known as an agent, can prove invaluable. These professionals possess the expertise to navigate coverage options effectively and identify the most suitable provider to meet your specific needs.

Alternatively, utilizing an online insurance marketplace offers another avenue for selecting providers and swiftly comparing quotes.

It’s essential to recognize that insurance policies seldom offer a one-size-fits-all solution for businesses. As such, bundling multiple policies together may be necessary to craft a comprehensive coverage plan tailored to your company’s requirements.


Choosing the right insurance policies for small businesses

Some insurance policies are conveniently bundled together, such as the combination of general liability insurance and business property insurance into what is known as a “Business Owners Policy (BOP).”

Seeking insurance bundles enables you to acquire necessary coverage at a reduced cost compared to obtaining them individually.

Maintaining an adequate insurance policy tailored to your industry is imperative for assuming accountability and responsibility in any legal situation. A dependable insurance company can effectively respond to unforeseen catastrophes or events impacting your business.

Furthermore, it’s prudent to reassess and adjust your policy as your business experiences growth beyond initial projections. Your equipment represents a valuable asset and should be adequately covered to mitigate potential risks.


As per the HSE report, “in 2020/2021, an estimated 441,000 workers sustained non-fatal injuries according to self-reports.”

These foundational small business insurance policies address fundamental exposures, aiding both you and your employees in sidestepping inclusion in such statistical figures. Nonetheless, additional coverage may be necessary based on your industry, location, and product development endeavors.

Fortunately, businesses have access to a diverse array of insurance types tailored to mitigate these specific perils. By making informed decisions at the appropriate junctures, your company can preempt significant financial losses and potential bankruptcy.

Internationally, compliance with such insurance requirements is paramount when engaging with personnel. For instance, the majority of international laws mandate businesses to possess workers’ compensation insurance if they employ individuals. Similarly, commercial auto insurance is mandatory for all company-owned vehicles.

Any enterprise involved in high-risk activities, such as construction, must secure adequate insurance coverage to mitigate the looming threat of bankruptcy in the face of legal proceedings.

Furthermore, liability insurance may be mandated for any employment scenario involving worker engagement. Hence, it is prudent to consult with a business insurance professional to ascertain the requisite coverage tailored to your business’s unique needs.


Amy Danise

Amy Danise is the managing editor for and Forbes Advisor's insurance section, covering auto, home, renters, life, pet, travel, health, and small business insurance. With over 30 years in the insurance sector, she specializes in simplifying complex insurance topics into actionable information. Amy collaborates with her team to translate insurance jargon into clear language for consumers, helping them understand insurance costs and find top-rated companies. Leveraging her extensive industry contacts, she develops Forbes Advisor's insurance content and analyzes state regulatory filings for insights. Amy's expertise has earned her features in major news outlets like The New York Times and The Wall Street Journal. She holds a Bachelor's degree in American Studies from Wesleyan University.

Leave a Reply

Your email address will not be published. Required fields are marked *