What is Small Business Insurance?

Small business insurance, also commonly referred to as commercial insurance, is a way for business owners to protect their assets, property, and income. Coverage can help mitigate most business risks to ensure a company can survive the financial costs associated with a disaster, accident, theft, interruption, or lawsuit, to name a few events. Not being insured can leave both your business and yourself at significant risk.

Unfortunately, many proprietors neglect to obtain a comprehensive plan that gives them the coverage they need and they don’t realize this grave error until it’s too late. Statistics indicate 44% of small business owners have never purchased insurance, even after operating for more than one year. Furthermore, experts suggest up to 75% of small businesses are underinsured.

Small business owners need to protect their companies from losses and liabilities occurring during normal operations. There are many different types of insurances proprietors can choose to customize their individual needs.

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What Insurance Do I Need For a Small Business?

At a minimum, you’ll need basic coverage, such as general liability, business property coverage, and business interruption coverage. Most businesses that have employees working for them are required to purchase workers’ compensation unemployment and disability insurance. How this is structured and what coverages are required will vary by state. Many states also require certain small businesses to take out additional industry-related insurance; always check your state’s requirements when buying an insurance policy. Additionally, if you routinely work with other businesses, determine their requirements, because they won’t work with you unless you have obtained specific coverages.

What Does Small Business Insurance Cover?

Small business insurance generally covers losses that occur during the course of doing business, such as fire, theft, bodily injury, lawsuits, loss of business income, and property damage. Most policies come with limitations, and it’s important to understand, basic insurance won’t cover all events. Small business owners should always carefully read through their policy to determine what is – and isn’t – covered, along with any coverage limits and deductibles.

Depending on your industry and type of business environment, you might want to add other types of small business coverage. Ensuring the right insurance is purchased provides personal protection from your personal assets as well as your business’s assets. As a general rule of thumb, you should obtain insurance for any losses or liabilities you couldn’t afford to pay for out of pocket.

6 Types of Business Insurance

As you consider your needs, along with any regulatory insurance requirements, look at all aspects of your operations, and consider industry hazards as well. To start, conduct a risk assessment of the events most likely to occur and determine what type of insurance will cover these losses or lawsuits.

List of Types of Business Insurance:

  1. General Liability Insurance
  2. Product Liability Insurance
  3. Professional Liability Insurance
  4. Commercial Property Insurance
  5. Home-based Business Insurance
  6. Business Owner’s Policy

General Liability Insurance

The most common type of business insurance, this coverage protects small businesses against financial losses stemming from property damage, bodily injury, medical expenses, lawsuit defenses, libel, slander, and settlement bonds or judgments.

Product Liability Insurance

This type of coverage protects a business against any financial losses stemming from a defective product that causes injury or bodily harm. Any company that engages in manufacturing, wholesaling, distributing, and retailing, should obtain this coverage since a lawsuit can identify anyone in the supply chain as creating the hazard that causes injury.

Professional Liability Insurance

Businesses providing services to consumers for a fee should obtain professional liability coverage. Also known as Errors & Omissions insurance, this coverage protects professionals from being financially responsible for any negligence claims filed against them by people who have suffered financial losses related to the services provided.

Commercial Property Insurance

This coverage enables business owners to claim damages to equipment, signage, inventory, and other assets lost to events such as fire, storm, wind, hail, smoke, civil disobedience, or vandalism. It doesn’t cover events such as floods or earthquakes; businesses located in areas prone to these mass-destruction events will need additional coverage.

Home-based Business Insurance

Business owners running operations from their homes can add a rider to their homeowner’s insurance for a small level of protection, however, it doesn’t replace full business coverage. Small business owners will want to look at home-based business insurance to cover their equipment, inventory, and any other losses they might sustain.

Business Owner’s Policy

Otherwise known as BOP, this coverage is ideal for many small business owners, especially home-based business owners. Essentially, a BOP combines several coverage options into one bundle. When selecting a BOP, be sure to understand any coverage limitations and know exactly what’s covered in the bundle.

Business Insurance Frequently Asked Questions (FAQs)

Do I really need business insurance?

All businesses should obtain the minimum coverage as dictated by law and recommended by industry. Failing to get insurance can result in severe financial loss due to an unexpected event or if a liability lawsuit is filed against you. The Small Business Administration indicates between 36% and 53% of small business owners face litigation in any given year.

What insurance do I need for my business?

You should, at a minimum, have enough insurance to cover what is required by law, along with enough to pay for anything you couldn’t afford to pay for out of your resources. Be sure to reassess your insurance needs annually to determine any changes (e.g. business growth or new equipment), and to calculate if you have too little or too much coverage.

How much is small business insurance per month?

Insurance costs per month for small businesses vary and will depend upon the type of business and the amount of coverage purchased. The insurance company will review your business’ size, type of industry, number of employees, claims history, and any risk factors to determine your premiums. It can range anywhere from $60 to several hundred dollars per month.

What is the best insurance for small businesses?

While the minimum level of insurance may sound acceptable, the best insurance for your small business will be the coverage that will pay for any risk factors related to your industry or region where your business is located. There are basic policies and bundles, but there is no one-size-fits-all option.

How much is insurance for an LLC?

Small businesses registering themselves as an LLC protect themselves from personal liability. Generally, LLCs can expect to pay anywhere between $700 and $3,800 per year for small business insurance, but again, this will greatly vary. You can often get discounts by bundling insurances along with paying premiums upfront. Be sure to shop around because prices and benefits can drastically vary.

Bottom Line

To learn more about how to get small business insurance, it’s wise to speak to a licensed reputable agent with extensive experience with the different types of business insurance.