- Business insurance protects your company from financial loss in the event of an accident or crisis.
- There are several types of business insurance that can protect you and your property against liability and disaster.
- The best combination of insurance depends on your specific business needs.
- This article is for entrepreneurs, startups and small business owners who want to know what types of business insurance are available.
Accidents happen, whether you prepare for them or not. One way to protect your small business against the inevitable is by acquiring small business insurance. There are various types of small business insurance, depending on what you want to protect (e.g., liability, property, automobiles). The best way to choose the right insurance for your business is to learn about your options. We’ve compiled a list of 25 types of business insurance for you to consider.
What is business insurance?
Business insurance is a form of risk management, used to protect you and your company from financial loss in the event of an accident or crisis. According to Rorie Devine, interim chief technology officer at GRO.TEAM, it is vital for businesses to apply for insurance because it will help cover the costs associated with property damage and liability claims.
“If you are without business insurance, as an owner you could run the very real risk of having to pay out of pocket for costly damages and legal claims against your company,” Devine told Business News Daily. “Depending on the cost, this could effectively shut down your business without insurance, meaning that, although you may not need to claim on insurance often, just one use could see the insurance cost paying for itself straightaway.”
Key takeaway: Business insurance helps protect you from financial loss in the event of an accident like property damage or a liability claim.
Protect your business against liability
Some of the most important types of business insurance protect you from liability. The type of liability insurance you need will depend on your business and the services you provide. Learn about some popular types of liability insurance available.
General liability insurance
General liability insurance, also known as business liability insurance, is essential coverage for a variety of claims, like bodily injury, property damage, personal or advertising injury, medical payments, products completed operations and damages to premises rented to you. Virtually every type of small business owner or contractor should have some form of general liability insurance. When comparing policies, keep in mind that your rates will depend on the specific features of your business.
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Business owners policy (BOP)
If you are seeking both general liability insurance and property coverage, you can package them together in a business owner insurance policy, also known as BOP insurance. This provides liability coverage for customer injury, property damage and product-related claims, in addition to commercial building and movable property coverage. This is ideal coverage for small and midsize businesses like restaurants, retail stores and wholesalers. Keep in mind that BOP insurance doesn’t cover your employees.
Employment practices liability insurance (EPLI)
Small businesses with employees often benefit from employment practices liability insurance. This type of insurance protects you if an employee files a claim against you for wrongful discipline or termination, sexual harassment, discrimination, negligent evaluation, breach of employment contract, mismanagement of employee benefits or wrongful infliction of emotional distress. Some insurers offer EPLI as stand-alone coverage, whereas others offer it as an endorsement to their BOP. The terms and conditions of your policy will depend on what type you sign up for. Your business type, number of employees and various risk factors all play a part in the cost of EPLI.
Professional liability insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, protects businesses that offer professional services. This is often used by B2B businesses for protection against claims stating their services caused financial distress to clients. This type of insurance is essential for professional service providers like consultants and financial advisors.
Contractors professional liability insurance (required)
If your business is in the design-build or construction management industry, you are required to purchase some form of contractors professional liability insurance. This coverage protects professionals against construction errors or losses incurred when designing, engineering and constructing a building. It can also protect you from errors made by third-party vendors associated with a project.
Directors and officers (D&O) liability insurance
If your business has a corporate board of directors or advisory committee, you will want D&O insurance. This insurance protects the personal assets of your directors and officers if they are personally sued for wrongful acts in company management (e.g., failure to comply with workplace laws, fraud, theft of intellectual property, misrepresentation of company assets, misuse of company funds).
Management liability insurance
This is a combination of insurance coverages that are used to protect private, public and nonprofit companies for a variety of board-level exposures. It protects against the risks of managing a business and is purchased by organizations that have a board of directors. A typical management liability insurance package includes coverage for employment practices liability, fiduciary liability and D&O liability.
Product liability insurance
This type of insurance provides more protection and security than a simple product warranty or product guarantee. For example, it protects your business in the event that your product causes damage or injury to a third party, or if your business faces a product-related lawsuit. This is important for companies that repair damaged products.
Key takeaway: Nearly every business can benefit from liability protection like a business owners policy, management liability insurance, professional liability insurance or product liability insurance.
Protect your business property and equipment
Your company property is essential to running your business, and it can be very costly to repair if damage occurs while it’s uninsured. There are various types of property insurance to protect your buildings, automobiles or other equipment, and the type you need will depend on the property you own or rent.
Commercial property insurance (required)
Commercial property insurance protects your physical assets (your building, equipment, inventory, tools, furniture and personal property) and covers financial losses due to property damage from fire, theft or loss. Coverage for property insurance can vary from basic to comprehensive (and pricing scales to reflect that), although small and midsize businesses with physical assets typically need some form of this coverage. Unless you own your commercial property outright (meaning there is no lien or mortgage against it), your lender will require you to have this coverage.
Homeowners insurance (required)
If you have a home-based business or store business property in your house, check the business coverage under your homeowners insurance. Homeowners insurance often only provides limited coverage (e.g., $2,500) for business property or equipment stored in your home, and some policies don’t cover business property at all. Those with a home-based business should seek fuller business coverage through a homeowners policy endorsement or an in-home business policy. Much like commercial property insurance, a homeowners policy will be required by your lender until the mortgage is paid.
Business renters insurance
Business renters insurance is important for businesses operating in one or more rented spaces. It will cover incidents within the space, like fire, floods, accidents, and building or property damage due to natural disasters. This type of insurance covers many of the same things other policies do, but for rented spaces specifically.
Personal auto insurance (required)
If you are self-employed and drive your personal vehicle for business purposes, you may be covered under your personal automobile insurance. If you personally own your car, truck or van and only use it occasionally for work, you may be able to skate by with standard personal auto insurance. However, if you operate a company-owned vehicle, your vehicle is specifically designated for work or you need higher coverage, you may need a commercial automobile insurance policy.
Commercial auto insurance (required)
This type of insurance coverage is similar to personal automobile insurance, as it protects your cars, trucks or vans in the event of damage, injury or liability claims. However, commercial auto insurance provides more coverage, like property and liability trailer exposure, loading and unloading exposure, hired-vehicle coverage, non-owned vehicle coverage, and higher coverage limits. You will likely need this form of auto insurance if you have vehicles used for business purposes, dump trucks, tow trucks, snow plows, semi or commercial trailers, vehicles exceeding 10,000 pounds, or vehicles with installed business equipment (e.g., toolboxes or ladders).
Business overhead expense (BOE) insurance
Business overhead expense disability insurance, commonly known as business expense insurance, goes hand in hand with your disability insurance. BOE insurance covers the cost of running your business (based on actual expenses like utility bills and employee salaries) in the event that you become disabled and can no longer operate your business on your own, but it does not pay your own salary (as an employer) while you are out of work. This type of insurance is a common purchase for small law firms, medical practices, and architecture and accounting firms.
Key takeaway: Small businesses need to protect their property with policies like property insurance and auto insurance.
Protect your executives and employees
One of the most important assets to your company is your team. It is important that you have the appropriate insurance coverage to protect you and your employees. The type of insurance you need will depend on you and your team (and legal requirements). Learn about the popular types of insurance available to protect you and your team.
Workers’ compensation (required)
Workers’ compensation insurance, also known as workers’ comp or workman’s comp, covers medical costs and a portion of lost wages to an employee who has suffered a work-related illness or injury. If an employee accepts the benefits of workers’ comp, they relinquish their ability to sue your company for the illness or injury. This insurance is often required by law.
Disability income insurance (required)
Disability insurance is similar to workers’ comp in that it temporarily covers an employee’s lost wages if they are unable to work because of a disability. However, disability insurance will cover injuries or illnesses that occurred on or off the job, whereas workers’ comp only covers work-related ones. This type of insurance is sometimes required by law.
Key person insurance
Key person insurance, also known as key man insurance or key woman insurance, helps replace lost revenue due to the death of a key executive of your business. Your business pays the premium while the key person is alive, and then collects a death benefit after their passing. These benefits can be essential to continuing the operation of your business and/or finding someone to fill their role.
You, and any member of your business, can acquire a life insurance policy. This is similar to key person insurance, providing a beneficiary with financial assistance in the event of your death. This can give you peace of mind that your family or business partners will not be financially burdened by your death.
Key takeaway: Policies like workers’ compensation and disability insurance are often required by law.
Protect your business from disasters
If your business falls victim to an unexpected disaster, you’ll want to be insured. One calamity can cost an uninsured business more than the company is worth, resulting in irreparable financial loss and legal suits. To protect your business, you will need some combination of disaster insurance.
Business interruption insurance
Business interruption insurance, also known as business income insurance, is one of the most common types of coverage most small businesses need. If a disaster strikes (such as a fire, flood, theft, building collapse or civil authority incident) and your business is required to shut down for a period of time, business interruption insurance will help to cover lost income or operating expenses like mortgage or rent, loan payments, taxes, and payroll. Business interruption insurance can be bundled into your BOP.
Comprehensive crime insurance
Crime insurance can protect your business from financial loss due to criminal activity, including computer and funds transfer fraud, employee dishonesty, forgery and alteration, loss of money and securities, and theft of your clients’ property. If you have employees or work with sensitive information, you will want some form of crime insurance. Before purchasing a policy, make sure the provider covers your industry.
Small businesses with loans or credit cards can purchase credit insurance, also known as payment protection insurance, to ensure that their payments will still be made in the event of financial shock that prevents them from paying (such as a death, disability or unemployment). Unlike disability insurance, credit insurance does not pay the employer; it simply pays your lenders what you owe.
In the digital era, protecting your company’s technology is imperative. Small businesses should seek cyber insurance to protect against loss from cyberattacks like ransomware, viruses and data breaches. Cyber insurance can include data breach insurance (which is good for helping small businesses recover) and cyber liability insurance (which is geared toward larger businesses that need more coverage).
Product recall insurance
If your business sends out a defective product and needs to recall it from the market, product recall insurance can financially help you do just that. This insurance is typically necessary for manufacturers to cover recall costs related to customer notification, shipping and disposal.
Inland marine insurance
Small businesses that have movable business property can purchase inland marine insurance to protect their equipment, products, or materials while they’re in transit via truck or train. Although “marine” implies water, this insurance only covers transportation over land, as well as property being temporarily warehoused by a third party.
Commercial umbrella insurance
For an extra layer of protection, business owners can seek out umbrella insurance. Commercial umbrella insurance (similar to personal umbrella insurance, but with higher policy limits) covers the cost of additional liability that exceeds the limits of an underlying policy, such as your general liability or commercial auto insurance. Though often referred to interchangeably with excess liability insurance, commercial umbrella insurance can also sometimes cover claims that the underlying policy wouldn’t otherwise cover.
Key takeaway: You can protect your business against losses from physical and technological disasters with policies like business interruption insurance and cyber insurance.
Choose a combination of insurance
There isn’t one type of insurance that meets the needs of every business – you will need a combination of business insurance plans based on your location, company and industry. Alex Roje, partner at Lathrop GPM, said each small business owner should assess their specific needs and liabilities to come up with the combination that best protects their business.
“Consider what sorts of liabilities or issues keep you up at night, and then sit down with a reputable experienced insurance broker and discuss a plan to cover those, and to get her assessment of additional coverages you may need,” said Roje.
Once you’ve determined the type of coverage you need, it is imperative that you choose an insurance plan that is comprehensive (or basic) enough to match your associated risk and liability. Roje said pricing shouldn’t be the sole driver of the insurance products you buy.
“Cheaper is not always the right choice,” said Roje. “You may be buying the Pinto version of coverage when you really needed the Ferrari, or at least the Toyota.”
Key takeaway: Choose a combination of insurance policies that adequately protects you, your business and your employees.
How to choose business insurance
Finding the right policy for each type of insurance – as well as combining the policies you need – can be a large task. A few tips can help you navigate this world and optimize your selection without needing to become a bona fide insurance expert.
- Tally your assets. This is the first step because you need to know exactly what your insurance is supposed to cover.
- Think about your risks. Every business is subject to a unique set of risks. A company that rents jet skis has very different risks from a dog groomer, but either could be sued if something goes wrong, and both companies have plenty to lose from theft or natural disaster.
- Consider your responsibilities. Professional services are subject to a whole different kind of risk. You are liable for being an expert when you provide these services. That means honest mistakes or bad advice could get you into legal and financial trouble. It is important to know your responsibilities and have adequate liability coverage for them.
- Compare coverage to cost. Money is always the great consideration. It’s tempting to buy just the minimum coverage to save a few dollars, but it’s worth your time to look at comprehensive plans, extra coverage and the fancy add-on features to see everything that might make sense for your circumstances.
Editor’s note: The contents of this article do not offer legal, business or insurance advice related to the needs of any specific individual business. Please consult your attorney and/or small business insurer to discuss your situation and coverage.