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Small Business Insurance Basics

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No two businesses are the same. Your choice of business structure, location, and anticipated growth will impact which type of coverage is right for you. In addition, not all coverages or types of coverage are available in every state, so be sure to work with an insurance professional who can help you understand the regulations specific to your area before you begin the purchasing process.

What insurance do Small Businesses need?

Insurers often combine a number of insurance coverages into a package sold as a single contract. The most common policy for small businesses is the Businessowners Policy (BOP). The BOP combines coverage for all major property and liability insurance risks as well as many additional coverages into one package policy suitable for most small businesses. The term "BOP" specifically refers to insurance policy language developed (and revised as needed) by experts at ISO. ISO provides sample insurance policy language, research, and a variety of other products to insurance companies. In addition, the BOP includes business income insurance, sometimes called business interruption insurance. This compensates a business owner for income lost following a disaster. Disasters typically disrupt operations and may force a business to vacate its premises. Business income insurance also covers the extra expense incurred if a business operates out of a temporary location.

The types of Small Business Insurance coverage

Liability Insurance

Liability insurance is one of the most important types of small business insurance coverage you can purchase. This type of coverage helps pay for costs associated with liability claims and lawsuits if your business does not adhere to specific procedures around safety and sanitation or causes injury or damage to a person or property while conducting its operations.

Commercial Property And Casualty Coverage

This type of coverage protects your business from unforeseen losses due to fire, theft, or other damage to your property. It often includes some form of liability protection as well. Small businesses generally have two options when purchasing this type of insurance: on an all-risk, replacement cost basis or a named perils basis. An all-risk policy covers all potential hazards and provides replacement cost coverage, while a named-perils policy covers only specific types of loss.

Workers' Compensation Coverage

In several states, employers are legally required to carry workers' compensation coverage for their employees. However, in some cases, small businesses may be exempt from this regulation if they have a small number of employees and work in certain industries (agriculture is the most common example). Workers' compensation provides medical coverage and lost wages for work-related injuries or the death of an employee.

Business Auto Coverage

If your business owns, leases, or regularly uses vehicles for its operations, you should consider purchasing business auto coverage. This type of coverage pays for losses your business suffers due to accidents involving company-owned cars and trucks. It can also help protect you from liability claims resulting from damage or injury caused by an employee acting within the scope of their employment.

Umbrella Policy Protection

An umbrella policy is a stand-alone policy that provides an extra layer of protection over and above your other policies. It can provide coverage for liability, commercial auto, or property damage claims, depending on the type of coverage you have. Umbrella policies are flexible, so you can purchase as much or as little coverage as you need to suit your individual business needs. It is essential to note that umbrella policies do not provide any mandatory coverages required by state law, such as workers' compensation or liability coverage.

Cyber Liability Insurance

Cyber liability insurance is relatively new to the small business insurance market. However, as the use of electronic equipment and data networks has grown, so too have the number of cyber risks. Cyber liability insurance protects businesses against losses caused by a data breach or information theft that could lead to identity theft or other financial damages. This coverage typically includes costs associated with hiring an external worker to aid recovery, legal expenses, data recovery efforts, notification costs to affected individuals, and many others.

Why do Small Businesses need insurance?

Small businesses and startups often work on a tight budget. As a result, it might be tempting to forgo certain types of insurance that aren't required by law. A survey of 30,000 business owners conducted by Next Insurance found that 44% of responding businesses have never had insurance. Unfortunately, such a risk could end up costing your business way more than the monthly premiums would. For instance, if a customer slips and falls on your property, injuring themselves in the process, it typically costs up to $20,000 to settle a subsequent lawsuit, according to insurance provider Insureon. And when accidents happen, business insurance helps pay for damages you'd otherwise have to cover out-of-pocket.


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