Wed. Feb 1st, 2023
Business insurance

Just like health insurance or car insurance, small business insurance is hopefully something you’ll never need to use. But when the unexpected happens, business insurance can mean the difference between the continued success or failure of your business.

Unfortunately, many businesses are not covered. According to Next Insurance, 44% of small business owners have never purchased business insurance, even after operating for at least one year.[1] By purchasing the right types of business insurance, you can protect your company’s assets from damage and legal claims.

Many small business owners put off purchasing business insurance because the process can be confusing. Every business will need a slightly different insurance package depending on company size, location and industry – and the choice can be overwhelming, especially if you’ve just started your business.

That’s why in this guide, we’ll break down the different types of business insurance, how much they cost, and the buying process to find the best small business insurance for you.

What is business insurance?

Cyber Insurance

 

As an individual, you’ve probably dealt with insurance policies before—car insurance, renters insurance, health insurance, and more. Of course, each of these different types of insurance helps protect you in the event of the unexpected, if you get into a car accident, if your apartment gets flooded, etc.

Business insurance thus works in the same way as personal insurance. Business insurance protects your business against financial, legal or other claims in the event of an accident, lawsuit, disaster or other unexpected event.

That said, just like personal insurance, there are many different types of business insurance, and the specific types you need will depend on your business – what you do, how you operate, whether you have employees, what industry you’re in.

Although it will ultimately be up to you to decide which types of small business insurance you need and where to get the best coverage, there are generally nine basic types you’ll want to consider, including three that may be required by law if your business has employees.

So with that in mind, let’s dive into the details.

Why You Should Get Small Business Insurance

First, why do you need business insurance in the first place? If your business is a sole proprietorship or you only have a few employees, you may feel that you don’t need small business insurance.

In fact, business start-up risk insurance is a must to help protect your income and assets (both personal and business). After all, nearly one-third of businesses fail before their second year. This can be due to many reasons, such as a poor economic climate, a larger competitor entering the market, or difficulty in obtaining business financing.

That being said, while business insurance won’t stop the market risks associated with business ownership, it will protect your business (and in some cases, your employees) from property damage and legal claims.

According to the SBA, between 36% and 53% of small businesses face a lawsuit in any given year—and since most small business owners don’t have the financial resources to handle such issues themselves, the cost of not having insurance is often much higher than cost of obtaining coverage.[2]

Additionally, as we mentioned, some types of business insurance are required by law. For example, most states require businesses with employees to purchase workers’ compensation and unemployment insurance. Disability insurance is also required in some states.

In addition, you may be required to purchase insurance coverage when you raise money from investors or get a business loan. Additionally, requirements vary by industry: For example, a real estate agent with a car will likely need to purchase commercial auto insurance, and a company that processes sensitive data online will want to purchase cyber Directors & Officers Insurance.

Types of Small Business Insurance

Now that we know a little more about what business insurance is and why it’s important, let’s talk about the different types of small business insurance.

While there are other types off our list, these are the nine types you’ll probably want to consider first and foremost when thinking about what kind of business insurance you need.

The chart below summarizes these nine types of business insurance – including what the insurance covers and roughly how much each type of insurance will cost your business:

Workers Compensation Insurance (Required)

One of the three types of business insurance that may be required by law if you have employees is workers’ compensation. States require most employers to carry workers’ compensation insurance in case employees are injured on the job. This is definitely a requirement you don’t want to take lightly. Failure to purchase the required amount of coverage can result in fines and, rarely, criminal penalties.

If an employee suffers a work-related injury, employees will reimburse their medical expenses and pay them part of their wages while they recover. For example, workers would cover an employee’s back pain that stems from poor ergonomic desk setup. If an employee sues your company for work-related injuries, workers’ compensation insurance will usually cover the cost of defending the lawsuit.

You can purchase workers compensation insurance through a broker or private carrier. Business insurance quotes for workers typically range from $0.75 to $3 per month per $100 in employee wages.

Many states, such as New York, offer a state insurance fund that sells employee insurance at regulated rates. Larger businesses may even have the option of insuring themselves. You can get more information by contacting your state’s insurance department or workers’ compensation board.

Unemployment insurance (required)

Unemployment insurance is another government-required type of insurance coverage. This small business insurance covers your employees in the event of job loss or termination. Unlike employment insurance or many of the other types of business insurance we’ll discuss, unemployment insurance isn’t something you buy from an insurance carrier.

Instead, along with other payroll taxes, employers pay federal unemployment taxes (FUTA) and state unemployment taxes (SUTA). The state administers this program for employers and employees. Your tax burden depends on your number of employees, employee turnover and whether you are a new or established business. When an individual is out of work, they can apply for unemployment benefits.

Employers can calculate and make SUTA or FUTA tax payments themselves, but it is often easier to leave the calculations to your HR software or payroll service.

General Liability Insurance

Although businesses are not required by law to purchase general liability insurance, this is one type of small business insurance that every company should have. General liability insurance protects your business if a third party—such as a client, vendor, or customer—is injured by your business’s property, products, or services.

The following specific types of losses are covered:

Physical injury to business property

Damage to property of another individual or business while performing your job

Advertising Damages (Slander, Libel, Misappropriation, etc.)

This is an essential type of cover, especially if you are in an industry where accidents are more likely – such as landscaping, manufacturing and construction companies. Typically, business insurance quotes for a general liability policy range between $400 and $600 per year, although these costs can vary significantly depending on the level of risk in your industry.

Commercial Property Insurance

Commercial property coverage insures your business inventory, equipment, office space and other property against loss or damage. Commercial property insurance is a must for many types of businesses, especially those with a brick-and-mortar store.

This type of small business insurance covers small business theft, fire, vandalism, and some weather damage. Most commercial property insurance will cover flood damage and casualty damage such as burst pipes. However, not all policies will cover natural disasters such as earthquakes or tornadoes.

Depending on where your business is located and the specific probabilities of different types of disasters there, you may need to add specific coverage at an additional cost. Generally, however, this commercial property coverage will range from $1,000 to $2,000 per year.[8]

With this in mind, you can also look for business interruption insurance as an add-on or add-on to your commercial property policy. This type of business insurance protects against lost income in the event of property damage or an accident.

For example, if your store burns down in a fire, you will lose a lot of income while rebuilding it. Business interruption insurance will therefore cover this loss of income. In this sense, cyber insurance is also an important addition to any online business that processes customer data.

Professional liability insurance

Professional liability insurance, also known as errors and omissions or malpractice insurance, is a type of business insurance that people commonly associate with doctors, lawyers, and other professional service providers. For example, if a doctor makes a mistake during an operation, their malpractice insurance will cover the costs associated with a subsequent lawsuit.

That being said, doctors and lawyers aren’t the only ones who should have errors and omissions coverage. Many types of business owners can be guilty of professional negligence. For example, the designer may not have the site ready for the client’s launch date. As a result, they lose thousands of dollars in revenue and are suing for damages. The designer will be protected if they have professional indemnity cover.

So if you offer professional services of any kind, you should get professional indemnity insurance. However, you should remember that even if you have professional liability insurance, you will also want to have general liability insurance because the two types of small business insurance cover different things.

General liability policies cover physical injury, property damage and advertising damage. A professional indemnity policy, on the other hand, covers the financial losses of a client or other third party. Business insurance quotes for professional liability coverage typically range from $900 to $1,800 per year.

Key Person Insurance

Key people insurance is designed to ensure that the business outlives its owner. If an owner or other key executive in a business dies or becomes disabled, the subsequent toll on the business can be high. During the transition, the company will lose income and clients that the key person brought to the group.

Therefore, to stem these losses, small business owners can purchase key person insurance. With key people insurance, the business receives a payout to help the business stay afloat after the owner or another key person dies or becomes disabled. This type of business insurance makes your company more resilient and less dependent on the skills or charisma of a few people.

That being said, your business can use key person insurance proceeds to hire and train a key person replacement, pay employees, pay off debt, or take other steps to weather the blow of a loss. To determine what coverage you need, you’ll want to determine

 

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