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8 Most Popular Types of Insurance A Small Business Needs

Business insurance is critical in protecting a company’s assets. It prevents a business from completely going under due to accidents, injuries, theft, and other unexpected disasters. Multi-million dollar lawsuits can be filed in a blink, liabilities a business owner cannot pay on his or her own. 

There are eight primary types of business insurance, with policies and coverage levels depending on the type of business you operate.

1. General Liability Insurance

General liability insurance is the most common type of business insurance, covering the basic needs of small to large-sized companies. Liability coverage protects against claims that result in bodily injury or property damage at your place of business. This covers trips & falls, medical bills, and lawsuits. At a minimum, every business should carry general liability with accidents being the No. 1 cause of financial claims.

Note, this does not extend to employee injuries or errors and omissions caused by bad business counsel. This falls under professional liability coverage. 

General liability insurance is often a requirement when signing a new lease for a warehouse or office space or to finalize contracts with vendors and distributors.

Average annual premium estimates for general liability insurance could start as low as $250 for sole proprietor businesses and upwards of $2,000 with common limits of $1,000,000 per occurrence and $2,000,000 aggregate, subject to change depending on your industry, the number of employees, and coverage requirements. 

>>MORE: How Much does General Liability Insurance Cost?

Some businesses, such as clothing distributors and restaurant chains, may also be required to hold higher coverage by vendors.

Note, general liability insurance does not cover employee injury, but worker’s compensation insurance does. For small businesses with less than $1 million annual revenue, general liability insurance policy is usually packaged into Business Owners Policy (BOP), together with property insurance coverage and business interruption policies.

>>MORE: Best General Liability Insurance for Small Businesses

2. Workers Compensation Insurance

Workers’ compensation insurance, also known as workers comp, protects against claims by employees who are injured on the job. This could mean a broken collarbone while stacking shelves or a slip off a step ladder. Mid to long term injuries are also covered, including sprains and carpal tunnel syndrome. 

Premiums are affected by employee category type (the type of work performed by employees) and annual payroll amounts, with estimated premiums set at the beginning of each year. Payroll audits are scheduled by insurance carriers towards the end of the year, with refund checks or bills due based on your actual payroll. 

Premiums can vary between $300 and $500 a year per employee, with 3 separate limits offered. These limits cover employee physical injury payouts, employee sickness, and the third is a per-person limit for workplace-causing sicknesses. For example, the popular $100,000/$500,000/$100,000 policy limits payments up to $100,000 per physical injury, up to $500,000 per workplace-related sickness, and a $100,000 max per sick person affected by workplace-related sickness.

>>MORE: How Much does Workers’ Compensation Insurance Cost?

All states, except Texas, have laws requiring worker’s compensation insurance. Check here to find requirements in your state. 

3. Professional Liability Insurance

Also referred to as errors and omissions (E&O) insurance,  professional liability insurance protects you from giving the wrong advice to clients. If your professional consultations are inaccurate or fail to deliver a result, costs are incurred to defend a claim and any award or damages paid out to your angry client. 

This insurance is popular with credit counselors, accountants, financial and investment advisors, real estate agents, psychologists, coaches, doctors, and business consultants who provide life-changing counsel that may affect client’s income or livelihood.

Coverage costs depend on the industry, coverage limits, location, business revenue, and the number of employees. Lower risk industries such as accounting and real estate see annual premiums for a $1 million per occurrence / $2 million aggregate policy ranging from $500-$1500 and $600-$1500, respectively. Higher risk industries such as engineering and healthcare see annual premiums as high as $3,500 for the same coverage.

For this insurance, it is important to seek quotes from multiple carriers who understand your business and can provide the appropriate coverage. 

>>MORE: Best General Liability Insurance Companies for Small Business

4. Commercial Property Insurance

Commercial Property Insurance protects several types of physical assets related to your business, including your building (owned or leased) and business (equipment),  such as heating systems, printing presses, and air conditioning units. 

Claims can be based on replacement cost or actual cash value,  providing a temporary or permanent replacement. Actual cash value uses a methodology used to value insured property taking into account depreciation from the actual replacement cost. 

This type of coverage also extends to data breaches in the event of a cyber attack damaging your software or hardware, specialized equipment coverage for high-value business equipment such as printing presses, and money & securities coverage in case you lose cash. Equipment breakdown coverage can also provide temporary replacement equipment to keep your business booming.

5. Commercial Auto Insurance

Commercial auto insurance covers any accident claims tied to one or a fleet of vehicles tied to your business. These damages can occur as a result of accidents, fire, and extreme weather, which can shut down a business entirely. 

Commercial auto policies include one or more of the following coverages: comprehensive, collision, underinsured/uninsured motorist, medical payments, liability, and roadside assistance.  Other small industries may require niche coverages, such as rideshare insurance for Uber drivers and inland marine coverage for contractors and food truck operators that move equipment from location to location.

Costs for commercial auto vary based on vehicle type, value, past claims, number of drivers, overage limits, and several other smaller criteria. Semi-truck owners/operators can pay upwards of $12,500 a year, while commercial car drivers dabble in the $750 -$1,200 range.

>>MORE: How Much does Commercial Auto Insurance Cost?

6. Business Interruption Insurance

Business interruption coverage protects against loss of business income, which could be due to loss of property due to theft, fire, or other “acts of God.” It bases coverage based on pre-loss earnings, or revenues minus expenses, as well as other factors.

This type of insurance carries coverage limits, with any losses incurred beyond limits falling to the insured.  The most common business interruption policy has $1 million/occurrence and $2 million/aggregate limits with annual premiums between $500 and $1,500, amounts of which vary based on the insurance, state, risk levels, and business claim history. Policies have an established restoration period, the amount of time insurers will provide for lost income and expenses, preceded by a 48 to 72-hour waiting period before business interruption benefits kick in.

>>MORE: Business Interruption Insurance: Coverage, Costs, and Best 5 Providers

7. Product Liability Insurance

Product liability insurance covers companies in the event products they sell or manufacture cause injury, damage to property, or financial loss, covering all legal costs and compensation. It is designed for anyone who makes, sells, or services goods, such as bar stools that bend and break at first use, faulty product packaging that harms someone, or food that causes devastating stomach illness.

Coverage pays towards the cost of repairs, liability due to financial loss, and liability to cover temporary substitutes for other goods to keep your business running.

Businesses that frequency use product liability insurance include appliance sellers, home improvement suppliers, restaurants, apparel companies, and others that make, sell or service goods. Situations that could lead to lawsuits by consumers include design defects, product flaws, and defective or misleading warnings on labels.

>>MORE: Product Liability Insurance: Coverage, Costs, and Best 5 Providers

8. Cyber Security Insurance

Also called cyber liability insurance or data breach insurance, cybersecurity policies cover businesses in the event computer systems with sensitive data about customers, employees, and other third parties become the target of a data breach, denial of service, or virus attack. Costs incurred by businesses are a result of cyber attacks include client lawsuits against negligence, costs of informing customers, and replacing all damaged electronic data. Even fines or penalties assessed by regulatory agencies are covered, along with ay legal costs with hiring a dream team of attorneys. 

Businesses susceptible to cyber attacks are those that accept digital payments and/or store confidential customer and vendor information such as home address, social security, and medical data.  Breaches could result from a stolen company computer, phishing attack by an unscrupulous employee clicking on suspicious links, or a revengeful employee breaking into a server. 

In many instances, cybersecurity insurance also cover extortion payments made to hackers and onboarding reputation management services as a result of an ensuing public relations disaster. This could mean the hiring of a PR firm or a reputation management service to monitor all feedback flow.

Other Insurance Policies a Small Business Might Consider

Outside of the top 8, other insurance types can be added onto a business insurance package. This includes inland marine insurance, management liability insurance, employment practices liability insurance, and commercial umbrella insurance. All or some of these policies can be packaged into a larger Business Owners Policy (BOP), which can be customized to your business’ needs. 

>>MORE: Business Owners Policy (BOP) Insurance: Coverage, Costs, and Best 4 Providers

Final Thoughts

Business insurance protects your breadwinner and from professional mistakes and unexpected disasters. A $100,000/$500,000/$100,000  policy can work wonders in promoting peace of mind as you work to earn a living. It is important to work with top insurers in the market who understand your profession and your business, understanding coverage limits are based on type of business, state, and associated risk.  Be sure to compare several business insurance providers to find the right fit for your needs. 

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