15 Types of Business Insurance & Who Needs Them

Thang Truong

Updated on: December 28, 2021

Small business owners know that they need insurance, but what kind? There are so many types of business insurance, how do you know what kind you need, and how much? We’re here to help you sort it out.

Here’s a list of the most common types of business insurance:

General liability insurance
Professional liability insurance
Commercial property insurance
Business Owners Policy (BOP) Insurance
Workers compensation insurance
Product liability insurance
Cyber liability insurance
Business identity insurance
Commercial auto insurance
Commercial fleet insurance
Commercial umbrella insurance
Key person insurance
Directors & Officers insurance (D&O)
Employment practices liability insurance
Employers’ Liability Insurance

Here is the summary table for the 15 popular business insurance types:

Insurance type	Pays out to you	Pays out to others	Businesses that need this insurance
General liability	X		Almost every business
Professional liability		X	Businesses that provide a service that uses expertise
Commercial property	X		If you own anything valuable related to your business
Business Owners Policy (BOP)	X		Almost all small businesses need this policy
Workers’ compensation		X	You have employees
Product liability insurance		X	You sell products
Cyber liability insurance or data breach insurance	X	X	You store data online
Business identity insurance	X	X	You’re afraid your business might be impersonated
Commercial auto insurance		X	You use vehicles for business
Commercial fleet	X	X	You have more than one vehicle used in business
Commercial umbrella		X	You want an extra layer of liability insurance
Key person insurance	X		Your business could not survive without you (or another key person)
Directors & Officers Insurance (D&O)		X	All startups, small businesses, & nonprofits need this, especially when you have external funding
Employment practices liability insurance		X	You have employees
Employers liability insurance	X		If you don’t have workers comp insurance, you’ll need this.

We discuss the details of these business insurance types below and recommend which types of business would need them for your consideration.

General liability insurance for small businesses

Most businesses will do well to get general liability insurance. General liability protects you from lawsuits related to third-party bodily injury and third-party property damage, plus copyright infringement.

For example, if you have customers who come to your place of business, you need this insurance. An accountant who works from home but sees clients there would need this, just in case a customer falls down the stairs and breaks a wrist.

Professional liability insurance for small businesses and professionals

Professional liability insurance protects you if you make a mistake or accidentally leave something out in the context of your job. Sometimes this is called medical malpractice insurance if the person being insured is a doctor or other healthcare worker. It can also be called errors & omissions insurance.

Professions that rely on specialized expertise, such as doctors, lawyers, accountants, financial advisors, need this insurance. For example, if you’re a financial advisor and you recommend a stock and then the company goes bankrupt, the client can sue you for this mistake. Professional liability insurance protects you from these lawsuits.

Commercial property insurance for small businesses

Commercial property insurance protects the building you lease or own, as well as the contents within that space. It protects your professional equipment, your computers, your business inventory, and your personal property. If you work from home, your homeowner’s insurance doesn’t cover business-related property, so you still need commercial property.

Business Owners Policy (BOP) insurance for small businesses

Business Owners Policy (BOP) is often the most popular insurance coverage for small businesses. It bundles three most needed coverages into one convenient policy for small businesses: general liability insurance, commercial property insurance, and business income interruption coverage. This makes it easy and simple for small businesses to manage their business insurance coverage needs and saves a lot of money compared to having three separate policies.

It is also very easy to add additional coverages through endorsements to a BOP policy as well such as employment practices liability insurance (EPLI) or cyber security coverage or product liability coverage.

Learn more at the best BOP insurance companies.

Workers compensation insurance for small businesses

In almost every state (except Texas), if you have employees, you need workers’ compensation insurance. Some states vary in how many employees you need before it’s required though: many states require it if you have just one employee, and some states set the bar at four employees. However, you should have workers’ compensation insurance even if it isn’t required because it protects your employees if they get injured or become ill while on the job.

Product liability insurance for small businesses

Businesses that sell anything that could potentially cause damage or injury should get product liability insurance. The most famous product liability lawsuit is probably the McDonald’s coffee lawsuit, where a woman spilled coffee on herself and then sued McDonald’s because the coffee was too hot. She won the case.

Small businesses can get product liability insurance coverage in a stand-alone policy or as an endorsement to the general liability insurance policy.

Cyber liability insurance for small businesses:

Scams, phishing, hacking, and ransomware attacks are on the rise. You’ve probably received a few suspicious emails yourself. These hackers often go after businesses that store sensitive data on the web, which these days, is practically everyone. A data breach could cause you to be sued, so you’ll want cyber liability insurance.

Business identity insurance for small businesses

Identity theft is when someone steals your personal information to open new credit card accounts, embezzles money from online accounts, and poses as you for financial gain. Business identity theft is the same thing, only in this case, your business is impersonated. Small businesses are often targeted for this type of crime because they generally have deeper pockets than most individuals. They also have higher credit limits. Business identity theft is also known as corporate or commercial identity theft.

If someone impersonates your business, it can affect all members of the company, from the CEO to the most recent employee. It can easily bankrupt a business and may take years to untangle. Emails that pretend to be from Amazon, asking you to click on a link to solve a problem with your account are examples of business identity theft (with Amazon being the victim here). Obviously, Amazon will be fine, but that might not be the case if it’s your business that’s targeted.

Commercial auto insurance for small businesses

If you drive a car or a truck for business purposes (other than getting there and back) you need commercial auto insurance. It’s required in all 50 states. You may think you can just file a claim under your personal auto policy, but that would be a mistake. Your personal auto insurance policy doesn’t cover business-related claims. If you do file a claim under your personal policy and if your insurance company finds out, they can drop you as a client. Then you’ll have much higher premiums with your next insurance company.

Commercial fleet insurance for small businesses

If you have more than two vehicles that you use for business, you can cover them all under the same commercial fleet insurance policy. It works the same as commercial auto insurance, but for more than one vehicle, which saves you some money.

Commercial umbrella insurance for small businesses

Commercial umbrella insurance provides an extra level of liability insurance. It kicks in when the other types of liability insurance you have been exhausted, i.e. they have met their policy limits.

Why not just get a higher limit on your general liability insurance? You could, but what if you are sued by a former employee and your employment practice liability insurance is tapped out? In this case, commercial umbrella insurance will cover the lawsuit over what you have in EPLI insurance. You can also call on commercial umbrella insurance if your commercial auto policy reaches its limits. Commercial umbrella insurance offers flexibility.

Key person insurance for small businesses

Key person insurance is a life insurance policy on someone critical to the operation of a business. In the event the key person dies, the life insurance pays out and therefore, the business has some cushion while they figure out how and if they can stay in business. For a small business owner, the key person is usually the owner. Key person insurance should also pays out if the key person suffers a catastrophic injury or illness and can no longer work.

Generally, the company pays the premiums on the policy. You can get either a term life insurance policy or a permanent life insurance policy on a key person. The cost of this insurance will vary depending on the age and health of the key person.

Learn more at the best key person insurance for small businesses.

Directors & Omissions or D&O insurance for small businesses

D&O insurance is a type of business liability coverage. It pays legal defense costs, settlements, and damages if the executives and members of the board of directors of a business are sued. It also pays costs related to them failing to meet regulatory requirements. Without D&O insurance, executives and officers are held personally liable in these law suits. In many cases, companies have to lean in to cover these law suits in these cases as well.

It is often thought that D&O insurance is for large corporation. It is often a misunderstood myth. Learn more why small businesses and startups need D&O insurance coverage. Similarly nonprofit organizations also need this type of coverage as well.

Learn more at the best D&O insurance companies and the best nonprofit insurance companies.

Employment practices liability insurance for small businesses

This type of insurance protects the representatives of a company from lawsuits from employees. Employees can sue for sexual misconduct, discrimination, wrongful termination, harassment, and payment disputes. You may think you’re all one big happy family where you work, but employment discrimination/wrongful termination is the most common reason why small businesses get sued.

Employers liability insurance for small businesses

Employers liability insurance is also known as part 2 of workers comp insurance. The first part is to pay for medical costs and other benefits to employees when they get injured or become sick at work. The second part is employers liability insurance. It pays for legal costs when your employees sue you.

Businesses do not usually have both parts. If you offer workers comp insurance to your employees, by default, your employees waive their rights to sue you. If you don’t have workers comp insurance, when your employees get injured and sue you for benefits, you will need employers liability insurance to cover the legal defense cost.

Learn more at the best employers liability insurance companies.

Last thoughts

These are all the different types of business insurance you can get, but it’s unlikely you will need them all. You have to weigh the risks against the cost of the insurance. Remember to compare quotes and shop around, no matter what type of insurance policy you need. It’s the best way to save money on insurance.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.