What are the Types of Small Business Insurance?

Congratulations on starting your business. You don’t really know the level of risks you took or the entrepreneurial confidence you needed to get started.

The United States has over 33.1 million small businesses, and your business has been added to them, so you should start getting used to the competition.

However, you will still encounter more risks in the course of the day-to-day running of your business that will require small business insurance to protect you.

According to research, about 29% of small businesses in the United States don’t have small business insurance. This is shocking, considering how important insurance is.

Out of the 29% without small business insurance, 53% of them said they don’t have it because they don’t know the type of coverage they need.

If you’re part of the 53% of small business owners who are unsure about the insurance they need, don’t worry. This article breaks down all the types of small business insurance, so you’ll have everything you need to know.

Top Types of Small Business Insurance

We will talk about 10 important coverages for small businesses. However, you might not need all the policies; just get the one that is vital for your kind of business. You know that risks happen every day, so I don’t want you to be lagging behind when you finally come across one.

1. Business Liability Insurance

General liability, or business liability insurance helps keep a small business safe from paying for damages or injuries that might happen to someone’s property or body.

Small businesses can be legally liable for damages to a person’s property when they are within their business premises. 

Therefore, if your business is at fault for someone getting injured while they are at your company’s premises, except your employees, general liability insurance would cover their medical expenses and any wages they might lose because of the injury.

A general liability policy will cover your legal expenses, as well as any settlements or court rulings against you.

Examples of small businesses that may need general liability insurance include:

  • Coffee shop
  • Hair salon
  • Landscaping company
  • Yoga studio
  • Bakery
  • Cleaning service
  • Catering business
  • Pet grooming service
  • Handyman service
  • Event planning company

Insureon says that, on average, a general liability insurance policy costs about $42 every month.

2. Commercial Property Insurance

As long as your business has a physical location with working equipment, you cannot escape commercial property insurance.

Commercial property insurance covers your small business’s physical office and also your office equipment, such as furniture, computers, etc., including the ones you own and the ones you lease.

Starting a small business is not a small feat, as you must have invested a lot of time, money, and efforts to make things work, meaning that there are several things to cover with commercial property insurance.

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Commercial property insurance also includes coverage for tools, goods, office supplies, and important documents. That’s not all it covers; it also protects outdoor items such as fences and signs.

Commercial property insurance covers small businesses from financial losses when their property is damaged or lost due to different dangers like lightning, wind, fire, storms, theft, and vandalism.

Examples of small businesses that need commercial property insurance include:

  • Retail stores
  • Restaurants
  • Offices
  • Warehouses
  • Medical clinics
  • Auto repair shops
  • Manufacturing facilities

According to Insureon, the average monthly cost for a commercial property insurance policy is around $63.

3. Business Interruption Insurance

I know you don’t want anything to disrupt the day-to-day operations of your business because it can lead to a loss of revenue.

Business interruption insurance, also called business income insurance, steps in to cover the income your small business may have lost if you have to temporarily close due to a covered event, such as lightning, theft, falling objects, wind, fire, and more.

If your small business encounters any of these issues, business interruption insurance covers financial losses for damaged inventories, lost revenues, and extra expenses, including temporary relocation.

Examples of businesses that need business interruption insurance include:

  • Restaurants
  • Retail stores
  • Hotels
  • Manufacturing facilities
  • Medical clinics
  • Gyms
  • Auto repair shops

Findings from Insureon show that the cost of business interruption insurance typically ranges from $40 to $130 per month.

4. A Business Owners Policy

Do you know that there is an insurance policy that bundles business interruption, general liability, and commercial property insurance all into one? Yes, that’s the Business Owners Policy (BOP).

It’s a budget-friendly option to get small business insurance coverage because purchasing the policies separately could end up costing you more money.

According to the Insurance Information Institute, businesses with up to 100 employees and generating yearly revenues of around $5 million should consider buying a Business Owner’s Policy (BOP).

Well, if you think that a Business Owner’s Policy (BOP) will be expensive because it bundles the three key business insurances, then you are definitely wrong because it costs an average of $53 monthly to buy BOP insurance.

5. Commercial Auto Insurance

If your small business uses cars, vans, or trucks to deliver products to customers, you will definitely need commercial auto insurance.

If you think that you have personal auto insurance and are covered while driving your car for business purposes, then you will be shocked at the end.

Personal auto insurance doesn’t cover using your car for business purposes; rather, it’s for personal use. Hence, you must buy commercial auto insurance for your company trucks, vans, or cars instead of relying on your personal auto coverage.

You must buy business auto insurance for your company’s vehicle; otherwise, your insurance claims will be denied. This will result in you using your own money to pay for damages from accidents, and I can tell you that it will cost you more.

With average monthly costs of $142, commercial auto insurance is slightly higher than personal auto insurance.

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If your employees use their own cars or rent cars for business purposes, you can add hired auto liability insurance to your commercial auto coverage.

Examples of small businesses that need commercial auto insurance include:

  • Delivery services
  • Contractors (e.g., plumbers, electricians)
  • Landscaping companies
  • Catering businesses
  • Food trucks
  • Taxi or limousine services
  • Courier services

6. Cyber Liability Insurance

A cyber liability insurance policy was created to help cover the expenses related to data breaches and cyberattacks.

For instance, you own a small clothing store, and someone hacks into your computer system, stealing customers’ credit card details. Now you’re facing angry customers, potential fines from the government for not protecting their data, and expensive legal battles. But with cyber liability insurance, you’d have financial help to cover those costs and protect your business’s reputation.

The average monthly cost of purchasing cyber liability insurance in the United States is $140.

The small businesses that need cyber liability insurance include:

  • Online retailers
  • Financial services firms
  • Healthcare providers
  • Legal firms
  • Technology companies
  • Marketing agencies
  • E-commerce businesses
What are the Types of Small Business Insurance?
What are the Types of Small Business Insurance?

7. Errors and Omissions Insurance

E&O insurance, or professional liability insurance, is ideal for small businesses that render professional services to clients. This means that Errors and Omissions (E&O) insurance covers expenses arising from errors or mistakes you make while doing your work.

Errors and Omissions (E&O) insurance will compensate customers who file legal claims against your business. These errors could involve misrepresentation, breaching good faith, professional negligence, or giving inaccurate advice that caused damages to your clients.

If you don’t have E&O insurance, you will be the one to pay for legal defense, judgments, and settlements whenever customers file claims. So, if something goes wrong, you’ll be stuck covering the costs and hiring an insurance lawyer all by yourself.

Examples of small businesses that need errors and omissions (E&O) insurance include: 

  • Consulting firms
  • Accounting firms
  • Legal firms
  • Real estate agencies
  • Advertising agencies
  • IT and technology companies
  • Insurance agencies
  • Graphics design company

The monthly average cost of E&O insurance in the United States is $59.

8. Workers Compensation Insurance

At some point, your small business will grow in a way that you won’t be able to manage it alone. Therefore, you will need to employ people to assist you with running the company’s day-to-day operations.

No matter the number of employees you have, even if it’s just one person, you should subscribe to workers’ compensation insurance.

Workers’ compensation insurance takes care of any illnesses or injuries that happen while your employees are working, and in many states, it’s mandatory. This insurance helps pay for medical expenses, covers lost wages, and provides disability benefits for your employees who are injured or become ill while on the job.

Examples of businesses that need workers’ compensation insurance include:

  • Construction companies
  • Manufacturing facilities
  • Healthcare facilities
  • Restaurants
  • Retail stores
  • Landscaping companies
  • Cleaning services

The average monthly cost of small business workers’ compensation insurance is $47.

9. Commercial Umbrella Insurance

Where the coverage of your conventional liability insurance stops, that’s where commercial umbrella insurance will continue.

Commercial umbrella insurance gives your small business an additional layer of protection on top of your other liability insurance policies.

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This means that when your primary liability insurance coverage reaches its limit, commercial umbrella insurance steps in to give you additional protection.

There are many ways to use commercial umbrella insurance, but the most popular is to bundle it with both a general liability and a commercial auto policy for additional protection.

For instance, a small construction company faces a lawsuit when a passerby is injured by falling debris at one of their work sites. While their general liability insurance covers some of the expenses, the medical bills and legal fees exceed their policy limit. However, with commercial umbrella insurance in place, the additional coverage steps in to cover the remaining costs and protect the company’s assets from being depleted.

The cost of an umbrella policy depends on the level of coverage you want and the risk level of your business. However, on average, umbrella insurance will cost you $40 monthly for every additional $1 million of coverage.

Examples of small businesses that need commercial umbrella insurance include:

  • Construction companies
  • Property management firms
  • Janitorial and cleaning services
  • Trucking and transportation companies
  • Event planning businesses
  • Hospitality industry (hotels, restaurants)
  • Manufacturing companies

10. Product liability insurance

While some businesses are into rendering professional services to clients, others are into manufacturing products.

For businesses that render services, they need errors and omissions insurance, while those that are into manufacturing should get product liability insurance.

If your company’s product accidentally injures someone or damages their property, product liability insurance steps in to cover the costs of claims and lawsuits. You should subscribe to product liability insurance if you’re in the business of making products.

Examples of small businesses that need product liability insurance include:

  • Manufacturers
  • Retailers
  • Distributors and wholesalers
  • Importers and exporters
  • Crafters and artisans
  • Food and Beverage Businesses
  • Medical Device and Pharmaceutical Companies
  • Beauty and cosmetics companies
  • Fitness Equipment and Sporting Goods Companies
  • Children’s Products Companies

According to AdvisorSmith, on average, small businesses can expect to pay around $1,192 per year or about $99 per month for product liability insurance.

Benefits of Small Business Insurance 

The benefits of small business insurance include, but is not limited to:

  • Financial protection against unexpected losses.
  • Legal coverage for potential lawsuits.
  • Ensures business continuity during crises.
  • Provides peace of mind to owners.
  • Protects assets from unforeseen circumstances.
  • Ensures compliance with legal requirements.
  • Manages and safeguards the business reputation.

How to Save Money on Small Business Insurance

Insurance is an expense, and every business owner wants to save some money on their premiums. Here are seven proven tips to save money on your small business insurance:

  • Shop around for quotes from multiple insurers.
  • Bundle policies with the same insurer for discounts.
  • Choose a higher deductible to lower premiums.
  • Implement risk management strategies to reduce potential claims.
  • Consider pay-as-you-go or usage-based insurance options.
  • Review and update your coverage regularly to ensure you’re not over-insured.
  • Seek advice from an insurance broker near me to find the best deals.

Conclusion: Small Business Insurance

Now that you know the important insurance policies that small businesses need, it’s time to take action. You don’t have to buy every coverage listed, just choose the ones that directly impact your business the most and purchase them.

Protect your small business today with comprehensive coverage tailored to your needs. Don’t leave your success to chance, get small business insurance now for peace of mind tomorrow.

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