Insurance for small business owners: Essential policies to consider

In the realm of insurance for small business owners, navigating the landscape is crucial, as it can often be the determining factor between success and setback when unexpected challenges arise.

As small enterprises endeavor to achieve profitability, they encounter various scenarios that present potential financial risks. From legal disputes stemming from mishaps or errors to the financial repercussions of natural disasters or human-induced incidents, the need for adequate insurance coverage cannot be overstated.

In this installment of our client education series, Insurance Business delves into the complexities of insurance for small businesses. We will examine the mechanics of this coverage, highlight essential policies, and offer insights into how businesses can assess their unique protection requirements. Insurance professionals are encouraged to share this resource with small business owners to assist them in making well-informed decisions regarding their insurance needs.

Do you need insurance as a small business owner?

For small businesses and startups navigating within tight financial constraints, the allure of skimping on certain coverages, especially those not legally mandated, can be strong.

However, these enterprises often find themselves in situations demanding bold decisions. While such circumstances hold promise for growth, they also expose businesses to unforeseen risks, emphasizing the importance of maintaining a financial safety net.

Small business insurance acts as a shield against adversities that could otherwise inflict significant financial harm, potentially threatening the company’s survival. The implementation of suitable policies is crucial in streamlining the recovery process following an incident.

Furthermore, robust coverage enhances a company’s reputation and credibility, as clients tend to gravitate toward businesses perceived to have robust financial protection measures in place.

While obtaining insurance is a critical aspect of risk mitigation for small businesses, complementing coverage with effective risk management strategies is an essential approach to safeguarding assets and ensuring financial stability.

How to get an insurance policy for a small business?

Securing an insurance policy for your business is a straightforward process, but the critical step for any business owner is selecting the policy that best fits their business’s needs. This requires a thorough understanding of the potential risks facing the business.

For example, a small business with vehicle assets should consider vehicle insurance to protect against potential losses or damages resulting from accidents, natural disasters, vandalism, and related incidents.

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

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

1. Identify potential risks: Understanding the threats your business faces—whether from natural disasters, accidents, or other hazards—is crucial before purchasing insurance.
2. Gather necessary documentation: Essential business information, such as gross annual sales, employee count, equipment inventory, building specifications, and payroll details, provides insurers with the foundational data to tailor suitable coverage options.
3. Engage a reputable agent: Choosing a trustworthy business insurance agent is vital to ensure that your needs are prioritized over mere commission incentives.
4. Compare insurance offerings: Take advantage of the competitive marketplace by evaluating and contrasting insurance policies until you find an insurer that aligns with your budget and coverage needs.
5. Procure your insurance: Armed with comprehensive information and thorough comparisons, proceed to obtain the small business insurance that best suits your requirements.
6. Adapt as your business evolves: Regularly reassess your insurance needs with your agent as your business grows and undergoes changes to accommodate new assets or operational enhancements effectively.

What types of insurance policies do small businesses need?

Due to the diverse array of risks and challenges faced by individual small businesses, there is no one-size-fits-all small business insurance policy. The necessary coverage for a company depends on factors such as its operational characteristics, industry sector, and workforce composition.

Providers of small business insurance offer a range of policies customized to protect companies from various risks. While the available options are extensive, industry experts emphasize several essential policy types crucial for businesses to maintain their operations in the face of unforeseen accidents and disasters.

1. General liability insurance

As emphasized by the US Small Business Administration (SBA), general liability insurance represents a fundamental coverage essential for small enterprises. Also referred to as business liability or public liability coverage, it provides protection to companies against claims stemming from bodily injury or property damage associated with their business operations. Moreover, these policies offer coverage for claims related to reputational harm, including instances of libel, slander, and copyright infringement.

It’s crucial to recognize that small businesses do not directly receive compensation from this coverage; rather, payouts are allocated to the affected third party. In the absence of general liability insurance, companies would be liable for covering claims expenses directly from their own resources.

2. Professional liability insurance

Professional liability coverage is a critical asset for small businesses, offering protection against work-related claims that may arise from various scenarios such as inaccurate advice, misrepresentation, negligence, and personal injury including libel or slander.

Commonly known as errors and omissions (E&O) or malpractice insurance, this coverage provides a shield against legal expenses and settlement costs stemming from service-related errors and omissions, breach of contract, unfinished work, and budget overruns, among other liabilities.

It’s essential to highlight that professional liability insurance extends coverage not only to all employees of the business but also to the company itself. While not always legally mandated, obtaining this coverage is often indispensable for many small enterprises, particularly those operating in expert or advisory services.

3. Product liability insurance

Your assessment of product liability coverage is precise and apt. This insurance plays a critical role as a safeguard for businesses engaged in product sales, providing protection against lawsuits arising from customer claims of losses or injuries associated with the product. Furthermore, in addition to covering legal defense expenses, this policy offers compensation in situations where the business is found liable.

4. Commercial property insurance

Commercial property insurance is intricately designed to minimize disruptions to the daily operations of small businesses. It provides compensation for damages or losses sustained by a range of assets, including:

– The property or building where the company conducts its operations
– Equipment and technology essential to the small business
– Inventory consisting of products and materials stored and sold by the company

Beyond safeguarding physical assets, some policies also offer reimbursement for a portion of lost income resulting from damage that hinders the business’s usual operations. Commonly referred to as business property or commercial building insurance, this coverage is often required in commercial leasing agreements.

5. Commercial auto insurance 

Commercial auto insurance is a specialized form of coverage designed for vehicles utilized for business purposes. Similar in function to personal auto insurance, it primarily protects company cars, commercial trucks, and vans. This coverage typically includes:

– Bodily injury liability: Providing coverage for injuries caused by the driver to another person, along with legal expenses in case 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, rather than 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, even those with just one employee, are legally required to obtain workers’ compensation insurance. This vital coverage reimburses medical expenses and a portion of lost wages for employees who suffer injuries or illnesses while performing their job duties. Moreover, it shields small businesses from the financial strain of independently covering costs associated with work-related ailments and injuries.

Workers’ compensation insurance provides several forms of protection, as summarized in the table below:

7. Health insurance

Under the Affordable Care Act (ACA), businesses with more than 50 full-time employees in the USA are required 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 offers the Small Business Health Options Program (SHOP) as a viable coverage option.

Health insurance providers offer small businesses essential healthcare coverage, along with 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 designed to protect companies from financial losses caused by interruptions 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 include:

– Lost revenue
– Mortgage or rent payments for commercial space
– Loan repayments
– Employee salaries
– Tax obligations

Certain BI policies may also cover additional expenses incurred as a result of the interruption, such as the costs of establishing a temporary operational site or providing training to employees on the use of new equipment.

9. Cyber insurance

Cyber insurance provides essential protection for small businesses against financial losses resulting from cyber incidents. Typically, these policies offer two primary types of coverage:

1. First-party coverage: This aspect compensates the business for direct financial losses incurred due to a cyber incident.
2. Third-party coverage: This facet shields the business from financial liabilities arising 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.

For simple and practical ways to protect your small business against cyber threats, refer to 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.

What should small businesses need to consider before buying insurance?

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

1. Coverage options: While many policies may seem 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 seeking 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.


According to 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.

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