Small Business Insurance: What You Need to Know
Between general liability, commercial property, and cyber insurance, there seems like so much to cover. The Zebra is here to help, and Bold Penguin is here to compare insurance companies for your small business.
Small business insurance guide
Just like you need a homeowners insurance policy to protect you and your home against loss, business owners need an insurance policy to help protect business assets and prevent a financial loss. Most small business insurers will provide an array of coverage types that can suit your business needs, regardless of whether your business has dozens of employees or is just you.Â
Below, we explore common types of business insurance and whether or not they could be the right fit for your small business.
Key takeaways:Â
- All businesses should consider some form of small business insurance — whether it is just a business owners policy or a more comprehensive package.Â
- Each type of business insurance covers different needs and may be suitable for certain business types over others.
- The cost of small business insurance depends on several factors, including the size of your company, business assets and coverage needs.Â
What is business insurance?
Business insurance protects against accidents, lawsuits, natural disasters or other unexpected events that could put your business at risk. While the legal structure of your company is in place to protect your personal assets, the primary purpose of small business insurance is to protect your business assets.Â
In some cases, small businesses are required to carry certain types of insurance. For example, if your business has employees, the federal government mandates that you carry disability, unemployment and workers’ compensation insurance (except in Texas). Individual states may have separate requirements of their own.
How much business insurance do I need?
The amount of insurance that you need depends on the type and size of your business. State regulations can also play a part in what you are required to have. In general, a business owners policy (BOP) is a great all-around place to start. It combines general liability with property insurance to more fully cover you than those policy types can individually. Plus, by packaging them together, there is often a savings benefit for the policyholder.
However, depending on the type of business that you have, a BOP may not be sufficient. Plus, there are several coverage types that — while they may not be required by law — can end up being vitally important to the longevity of your business.
Does a limited liability company (LLC) need business insurance?
While your LLC will protect your personal assets (very important if you are a homeowner), your business’s assets could still be at risk, necessitating the need for small business insurance.Â
Types of small business insurance
There are many types of coverage available. Some of these are specific to certain types of businesses, while others are more broad and applicable to a wide array of business owners. Below are some of the more common options offered by insurance companies to serve the unique needs of your small business.
| Type of business insurance | What it covers | Who needs it |
|---|---|---|
| General liability insurance | Property damage, bodily injury and personal injury. Protects your business against property damage or injury lawsuits from a third party. | All business owners. It is required by many states, landlords, lenders, or other involved parties. |
| Workers' compensation | Lost wages and benefits for employees injure on the job and cannot return to work. | All business owners— it is required by law in every U.S. state except Texas. |
| Commercial property insurance | Physical structures, inventory and equipment for your business. Sometimes business interruption coverage is included here. | Businesses that own or rent property, have inventory or store products, and those with expensive equipment. |
| Professional liability insurance | Losses from lawsuits arising from unsatisfied clients. | Professional service providers like lawyers, engineers, architects, accountants and financial advisors. |
| Cyber liability insurance | Costs to recover from cyber attacks like data breaches that compromise customer information and privacy. | Any business that handles sensitive customer or employee data. |
| Commercial auto insurance | Liability, medical payments, uninsured motorist coverage and physical damage to company cars or personal vehicles used for business purposes. | Anyone with a vehicle titled to the business or use a personal vehicle for business activity. |
| Business interruption coverage | Lost revenue, taxes, lease or mortgage payments, and payroll during the recovery period after your business experienced a loss that required a pause in function. | Businesses in which damage to property or inventory would shut down production. This is an optional coverage rarely found as a stand alone policy. It can be added to a commercial property insurance policy as an endorsement. |
| Umbrella insurance | Umbrella coverage provides excess liability protection for personal or commercial needs, with business umbrella insurance covering claims that exceed underlying policy limits or fall outside their coverage. | Business owners with significant liability exposure or those in high-risk industries should consider umbrella insurance to protect against costly lawsuits and claims. |
For more information on each type of business insurance, expand the collapsed sections below.Â
General liability insurance
General liability coverage is a must for all small business owners. This covers property damage, bodily injury and personal injury. This is a core component of any business owners policy. Commercial general liability covers you in the event that a third party (outside of your business) sues because of injury or property damage. This could be a customer or a competitor.
Commercial general liability covers losses from:
- Medical bills resulting from bodily injury
- Advertising injury
- Libel or slander
- Customer property damage
- Court settlements
- Attorney fees
Providing a certificate of insurance to your client can act as proof that you and your customers are protected.
Workers' compensation insurance
Commonly referred to as workers’ comp, this is a form of insurance that supplements the wages of employees if they are injured on the job and cannot return to work for a certain period of time.
Most workers compensation policies cover the following:
- Death benefits
- Lost wages and medical expenses of the injured employee
- Protection against legal claims made by an employee (except in North Dakota, Ohio, Washington and Wyoming)
This coverage is very important and should be carried even where it is not required.
Commercial property insurance
Commercial property insurance covers the physical elements of your small business: physical structures, inventory and any other equipment. Property coverage is incredibly important for nearly all small business owners. Even if you rent your space, this coverage is vital for the protection of the property inside. Some policies contain business interruption coverage which can come in handy if your business is unable to do business for a period of time after an accident.
It protects your business property against the following perils:
- Vandalism
- Storms*
- Burglary
- Fire
- Explosions
- Burst pipes
*Note that most policies have exclusions for earthquakes or floods unless specifically added to your policy.
Professional liability insurance
Also known as errors and omissions insurance, this insurance type protects against lawsuits that arise due to clients who are unsatisfied or otherwise harmed by the services that you provide. Of the types of small business liability offered, this coverage is more closely related to those who provide specific professional services, such as architects or consultants.Â
Unlike general liability — which covers physical or advertising injury — professional liability covers:
- General mistakes
- Breach of contract
- Unfinished or undelivered services
- Missed deadlines
- Negligence claims
Cyber liability insuranceÂ
Data breach or cyber liability insurance is a must for any business that stores valuable information about employees or customers. This can include credit card details, Social Security Numbers and health information. If you suffer a data breach, this coverage can help you recover.
This coverage is designed to recover from cyberattacks by helping to pay for the following:Â Â
- Notifying affected parties
- Credit monitoring for those affected by the breach
- Attorney fees
- Penalties
- Investigating and fixing cybersecurity issues
Commercial auto insurance
Company cars or personal vehicles used for business purposes must be covered under a commercial auto policy. A personal car insurance policy simply won’t cut it. Commercial auto insurance is designed to protect vehicles used by your business, whether they be for deliveries, transporting employees or driving to worksites.
A commercial auto policy often covers the following:
- Liability (if an employee causes an accident)
- Medical payments
- Coverage against uninsured drivers
- Physical damage to company vehicles
Business interruption coverage
Business interruption insurance kicks in when your business experiences a loss that hinders its ability to continue functioning at a standard rate[1]. "Also known as business income insurance, it is optional coverage that 30-40% of small to medium size enterprises carry," says the Insurance Information Institute's Mark Friedlander. You can usually include this coverage within a commercial property or business owners policy. For this to pay out, the event that caused the loss must be covered under one of these policies.Â
Business interruption coverage is meant to protect:Â
- Lost revenue
- Rent or mortgage payments
- Taxes
- Payroll
- Extra expense coverage would also include coverage for temporary office space, equipment, and contractor overtime pay.
What is business umbrella insurance?
Business umbrella insurance provides an extra layer of liability protection when standard coverage isn’t enough. It kicks in once the limits of your underlying policies—such as general liability or commercial auto insurance—are exhausted or when a claim falls outside their coverage.
This type of policy is especially valuable for businesses with significant liability risks, including:
- Construction and contracting
- Hospitality and restaurants
- Retail and brick-and-mortar businesses
- Medical and legal professionals
- Manufacturing and distribution
- Property owners and real estate investors
- Transportation and logistics companies
Coverage limits can reach millions of dollars, ensuring your business has the financial protection it needs in high-stakes situations. If an accident results in extensive damages or legal expenses, a business umbrella policy can provide the additional support to keep your company secure.
Best companies for small business insurance
Most of the big players in the insurance industry offer small business insurance products alongside more common lines like auto and home. Let's take a look at these, and some companies that specialize in small business insurance.Â
Pros:
- Progressive's commercial auto insurance product is underwritten by Progressive itself.
- Commercial auto insurance covers multiple types of vehicles: cars, buses, trucks and others.
- Claims are handled directly through Progressive for commercial auto policies.
Cons:
- All other small business insurance policies are underwritten by affiliate companies, not Progressive itself.
- If you have to file a claim for a BOP, General Liability, Professional Liability and Workers' Compensation, you must go through the affiliated company by which the policy was underwritten.Â
Pros:Â
- BOP includes business interruption coverage, a rarity for this insurance type.
- Chubb extends coverage to businesses with $30 million or less in revenue.
- Policies and claims are managed directly by Chubb.Â
Cons:Â
- Online quoting is limited to companies with less than $1 million in annual revenue. Otherwise, you must contact an agent directly.Â
Pros:
- Next specializes in small business insurance — it is their sole insurance package.
- They offer specific policies like liquor liability, tools and equipment and product liability insurance for unique needs.Â
- Customizable policy packages with a 10% discount for purchasing more than one product.
- Online claims process and digital certificate of insurance allow for seamless use.
Cons:Â
- Hyper-specific types of business insurance are not available.Â
Pros:
- Hiscox is a specialty insurance provider for commercial policies.
- Offers online quoting for general liability, professional liability and BOP.
Cons:
- Commercial property policies are only included within a BOP — no standalone policy is available.
- Hiscox works with third-party companies to provide other insurance types like short-term liability, medical malpractice, workers' compensation and more.Â
How to choose the right small business insurance company
With so many choices, it can seem overwhelming to choose the right insurance company for your small business— that's why we've broken it down into a few steps you can follow to help narrow down your search:Â
- Understand which coverage is required by law: Typically, coverages like workers' compensation are legally mandatory. Check out if there are any other required coverages set by your state legislature or industry that you would need to carry.Â
- Determine the coverage your business needs: In addition to the required coverages, its important to evaluate your industry's risk and take stock of your equipment, assets and other components essential to your company. Does the insurance company offer everything you need?
- Look at the insurance company's financial strength: This is a great way to understand the insurance company's capability and reliability in paying out claims.Â
- Get quotes or speak to an agent: If you still need more guidance in planning your small business insurance policy, contact a licensed commercial insurance agent. Or, compare quotes from several companies to get an idea of cost.Â
How much does small business insurance cost?
The size and scale of your business will determine how much you pay for small business insurance. However, Progressive notes the average cost of general business liability coverage sold through the Progressive Advantage Agency in 2022 was $72 per month[2].
Several factors go into determining how much you’ll pay for small business insurance, including the following:
- Number of employees
- Type of industry
- Physical property type and location
- Business assets and equipment covered
- Coverage needs
The IRS usually allows businesses to deduct commercial umbrella insurance premiums if the policy is purchased to protect business income. To qualify, the policy must be classified as a business umbrella policy and be considered both ordinary and necessary for your operations.
Since umbrella insurance can cost between $500 and $1,500 annually—or more for larger businesses—a tax deduction can help offset expenses. However, personal umbrella policies are not deductible unless they cover rental properties. If you're a landlord with multiple properties, you may be able to deduct all or part of a personal umbrella policy's premiums.
Tax laws can be complex, so consulting a CPA or tax professional is the best way to maximize deductions while avoiding potential audit risks.
What if I run a business out of my home?
There are many insurance options for those who run a business out of their home. Because many small businesses start at home or operate entirely at home — especially in the COVID-19 era — knowing the proper type of coverage to have is crucial.
If your business is conducted entirely online, you may be able to add an endorsement to your current homeowners policy that can cover your needs. This can include businesses run by attorneys or freelancers such as graphic designers or writers. Typically this protects corporate property such as computers and usually offers coverage for personal liability or business interruption depending on the endorsement type.
However, if clients regularly visit your place of business — for instance, a home daycare or a massage therapy center operated from your home — then an endorsement is not likely to be enough. You’ll need to procure a separate commercial insurance policy to be properly covered.
How to save money on small business insurance
With all this talk of coverages, insurance types, and limits, small business insurance can seem like a fairly costly affair. Believe it or not, there are ways to save[3]— or at least, ways to guarantee you're getting the best value for your dollar.Â
- Our ultimate recommendation is to start with a BOP. A BOP allows business owners to put together several coverage types under a single policy rather than stringing them together à la carte. By customizing coverage to your business needs, you can simplify your insurance policy and often save money in the process.
- You can always choose a higher deductible. Like other insurance types, selecting a higher deductible lowers rates.
- Your insurance broker or agent is a valuable asset. Work closely with a professional so you can tailor a small business policy that fits your needs on your budget. Similarly, ask about ways to prevent losses. Your insurer may have specific recommendations on ways to lower your risk of loss. They may even offer a reduced premium if certain requirements are met.Â
Compare small business insurance quotes with Bold Penguin
Another great way to save money on your small business insurance is to shop around. Insurance rates can fluctuate from year to year, meaning that your rates are almost certain to change as well. Shop around to get small business insurance quotes to make sure you are getting the best rates.Â
Getting insurance coverage for your business doesn’t have to be difficult. Like The Zebra, Bold Penguin compares several insurance companies at once to offer tailored quotes to your insurance needs— at Bold Penguin, commercial insurance is their specialty. Get a quote from Bold Penguin today.
Frequently asked questions: Small business insurance
About The Zebra
The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.
- The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
- The Zebra’s insurance editorial content is not subject to review or alteration by insurance companies or partners.
- The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
- The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.