To help you get a handle on these different coverage options, below we have summarized the main points to note about each type of business insurance and what it covers versus other types of policies.
General Liability insurance
General Liability insurance is the most common type of business insurance coverage. It protects businesses from losses resulting from lawsuits or other claims that may arise due to injuries suffered by customers or members of the public while interacting with your business. This type of coverage can also cover property damage caused in the operation of your business and other incidents.
Likewise, general liability insurance covers court costs and any damages awarded—up to certain predefined limits as listed within the policy documents. It does not, however, protect businesses against losses stemming from gross negligence, wrongdoing, or illicit activities. For negligence, you may need professional liability insurance.
Professional Liability / Errors & Omissions insurance
Professional Liability insurance is commonly known as errors and omissions insurance (E&O) and protects individuals or organizations from damages due to bad recommendations, incomplete or inaccurate work, poor representations, and other errors or omissions in their work.
Professional Liability insurance is essential for businesses that provide advice or conduct other knowledge-based consulting services that clients rely on. Examples of businesses that need E&O coverage include accountants, attorneys, consultants, engineers, and medical practitioners.
In addition to protecting against liability, E&O insurance may also cover legal costs if any claims arise which can help protect your business’s finances and reputation. While professional liability insurance is critical for certain types of businesses, it may not be necessary for those not engaged in other professional work.
Workers’ compensation insurance
Workers’ compensation insurance is a type of coverage designed to help protect businesses that employ one or more people. However, it’s also available for sole proprietors. If you or an employee gets hurt or sick at work, workers’ comp helps cover medical expenses. It also provides compensation for a portion of lost wages while unable to work.
The exact details of workers’ comp coverage vary by policy, state regulation, the number of employees at the company, and additional policies or riders that may be triggered in certain cases.
In every state except Texas, workers’ comp is legally required for companies with at least one employee. Each state has its own rules and regulations about workers’ compensation insurance, coverage requirements, and policy options, so it’s a good idea to research thoroughly or speak to an insurance professional to understand your obligations before buying coverage.
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Cyber liability insurance
Cyber liability insurance is increasingly becoming an important form of insurance that can protect your business in the event of a cyber-attack or data breach. Cyber liability covers damage caused to prospects, customers, and infrastructure due to a successful cyber attack, as well as the cost of notifying affected parties and providing credit monitoring services. It also provides coverage for a lawsuit resulting from a cyber incident.
Cyber liability coverage is essential for any business that relies on technology or conducts any part of its operations in the cloud. It’s also necessary for any business that regularly handles or stores sensitive customer information, especially digitally. This is true even for small and micro-businesses as they typically are easier targets for cyber-attackers. This has been proven through examples such as the rise in ransomware attacks on small businesses.
Commercial property insurance
Commercial property insurance is a type of business insurance that protects businesses against financial losses due to damage or destruction of the physical assets they use in their operations. This type of policy is often used to cover things ranging from computers and other equipment to furniture, inventory, tools, and machinery, as well as signs, fences, and other fixtures.
Business personal property insurance is a subset of commercial property insurance that will cover items within a building, but not the building itself, making it ideal for businesses operating in rented spaces or for those who need supplemental coverage.
In general, Commercial property coverage typically covers business property against damage resulting from accidents, fire, or smoke, as well as vandalism, theft, lightning strikes, and windstorms. In some cases, commercial property insurance can also provide coverage for lost revenue resulting from business interruptions caused by covered perils. Some business credit cards can also offer theft and damage insurance against business equipment purchases, however businesses that rely on critical facilities or equipment should consider purchasing BPP or commercial property insurance to protect against losses from these various risks.
Inland marine insurance
Inland marine insurance is a special type of business property insurance that protects businesses transporting goods and equipment—both personal and commercial—across land.
This type of coverage is commonly used in cases where equipment is being transported to or from a job site, inventory is being distributed to different retail facilities or items are being shipped via truck. In some cases, it can also protect equipment stored at an offsite location.
Compared to other types of business insurance policies, inland marine insurance coverage tends to be more specialized due to the varied and specific needs of businesses that use it, making it an ideal insurance for contractors and builders or for entrepreneurs that travel with merchandise.
This type of policy can be tailored to cover different aspects, such as cargo loss and damage liability, or provide replacement cost coverage options in the event of theft or destruction. If you travel for work, you may also want to consider covering yourself against trip mishaps with comprehensive travel insurance as a supplement to inland marine insurance.
Sole proprietor business insurance
Sole proprietor business insurance is a set of coverages available to business owners and freelancers who operate without the protection of an incorporated entity, such as an LLC. This type of insurance typically provides basic coverage for things such as general liability and commercial property. It may also include specialized protections tailored to a particular industry or profession.
To be eligible for sole proprietor business insurance, you must have filed paperwork with your local municipality declaring the existence of your business. Premiums for this form of insurance vary widely depending on your business’s risks, making it important to carefully assess your specific risks and benefits before binding coverage.
What does small business insurance cover?
Small business insurance is generally used to protect the buildings or property that are used to conduct business (e.g., office space, equipment), potential liabilities (if someone is injured on the premises), and losses from theft or other covered events.
Depending on the type of policy you choose, your coverage will differ:
- General liability, business personal property, and inland marine will all cover damage or theft of physical items in some capacity.
- General Liability & Workers’ Comp will cover bodily injury in different capacities
- Cyber liability & professional liability will cover personal injury in certain different capacities.
Therefore, what small business insurance will cover depends heavily on the types of policies you buy.
Generally speaking, investing in small business insurance can give entrepreneurs peace of mind that their business assets and livelihood are protected from the risks they face each day. It may also cover business interruption by providing income to keep operations running if something unexpected happens. If you need more than one type of coverage, it’s a good idea to opt for several plans or to look into a business owner’s policy which often includes several types in one.
What does business insurance not cover?
Although business insurance provides important protection for small businesses, it doesn’t protect against everything.
Some things business insurance typically won’t cover include claims resulting from:
- Gross negligence, sabotage, or purposeful wrongdoing
- Certain natural disasters like floods & earthquakes
- Illegal activities or injuries resulting from drugs or alcohol
- Internal cyber attacks or data leaks
Most notably, insurance typically does not cover losses stemming from gross negligence or wrongdoing on the part of the small business owner or an employee. Insurance also won’t protect your business from losses resulting from illegal acts committed by you, your business, or your employees. Even legal activities, such as drinking alcohol may nullify your coverage in certain circumstances.
Additionally, some policies that cover property may also exclude natural disasters such as floods, earthquakes, or other acts of God. These exclusions vary by policy, so make sure you understand the limitations of your policy before buying coverage.
Lastly, some businesses may require additional forms of protection not included in typical business owner policies. For example, cyber liability insurance often isn’t included in basic business policies but may be important if your business stores sensitive customer data digitally. Address all coverage gaps when deciding what insurance to buy and how much coverage to get.
What kind of insurance do I need for my business?
The policy or policies you need ultimately depend on the specific risks your business faces and the assets you need to protect.
Different types of businesses require different types and amounts of business insurance coverage.
For example, contractors would need general liability insurance to thoroughly manage day-to-day business liabilities. However, to protect their employees, construction companies also need workers’ comp. To cover their tools and equipment while at the job site, they may need an inland marine plan as well.
By obtaining the right type of insurance and coverage limit, you can guard your business against potential financial losses caused by unexpected events like property damage and lawsuits. Therefore, understanding what type of insurance your business needs is a critical component of protecting yourself, your employees, and your company.
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What is a business owner’s policy (BOP)?
A business owner’s policy (BOP) is a comprehensive insurance package designed to help protect businesses from financial losses.
The specific coverages contained in a BOP vary by policy, but most contain three key components:
- Property insurance: protection for physical assets in the event of destruction by covered perils such as fire, theft, or vandalism
- Liability insurance: protection against claims of negligence or injury caused by the business’s actions or products
- Business interruption insurance: replaces income lost due to damage to a property caused by a covered peril, allowing your company to continue operations while recovering from the incident
The key advantage of a BOP is that you can combine numerous protections into a single policy instead of purchasing several individual policies. These combined policies can sometimes come with a lower cost than premiums available for multiple individual coverages.
However, not all companies offer Business Owner Policies, and getting the same amount of coverage is completely possible through multiple individual plans. Buying separate plans also allows you to tailor certain coverage types to the specific needs of your business as BOP plans may have inconvenient claim limits built in.
Ultimately, a BOP can give you peace of mind knowing you are protected in the case of an unforeseen incident. And should your needs change in the future, you can revisit the coverage types and limits provided in the policy and make appropriate adjustments.
How much does small business insurance cost?
A typical policy with basic small business coverage can range from several hundred to a few thousand dollars annually.
Based on quote data from our insurance quote tool, here is the average cost of business insurance by industry:
- Restaurants & Food Services: $442 / year
- Health & Wellbeing: $573 / year
- Freelance & Personal/Business Services: $598 / year
- Retail: $615 / year
- Professional Services: $616 / year
- Contractors: $808 / year
While these numbers are just an example of average quotes based on the people who make it through our quote journey, they can give you an idea of the relative cost of business insurance per industry.
The actual cost of your insurance will depend on your specific circumstances and the provider you choose. You may also qualify for lower rates depending on your industry, as seen above, as well as the combination of coverages you choose and other factors like claims history and number of employees.
One way to reduce your cost is by opting for lower coverage limits or higher deductibles. Keep in mind, however, that while these steps may reduce your premiums, you may have to cover more expenses out of pocket in the event of a covered incident.
List of factors affecting small business insurance cost
The cost of small business insurance varies based on many factors including:
- Size & annual turnover of the business
- Type of business & the industry
- Number of employees
- Business location
- Type of coverage purchased
- Coverage limits & premiums
- Existing/previous claims history
- Level of risk the business poses
Ultimately, the cost of small business insurance is based on the risk that your business represents to a carrier, the likelihood that it will file a claim during its covered period, and the likely cost of that claim to the carrier. The more you can do to reduce the risk your business represents to a carrier, the lower its cost of coverage.
Tips for getting cheap business insurance
Follow these tips to get the best deal on insurance for your small business:
- Identify what coverage you need and how much
- Bundle and combine plans to save
- Compare rates & quotes online or with an agent
- Implement risk management policies
Determine what coverage your business needs
As a business owner, you’re in the best position to understand the risks your business faces and the assets that need to be protected. Take time to assess your business risks carefully. Research different coverage options such as professional liability, product liability, and commercial property insurance. Once you identify the types of coverage you may need, you can get a quote for those various coverages, either individually or in a combined business owner’s policy.
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Bundle your policies
Bundling multiple coverages into a single policy helps business owners save both time and money. Bundling adds flexibility and convenience, allowing for customized coverage that fits the specific needs of the business. Additionally, bundling policies makes renewing or making changes simpler because it ensures each policy line is updated simultaneously. Moreover, bundling often leads to reduced premiums compared to purchasing the same coverages as individual policies.
Shop around for a better deal
Shopping around for business insurance is a great way to find the right coverage at the best price. A quick and efficient way to do this is by using an online quote comparison tool like the one available here through LA Times compare or speaking to one of our agents over the phone. With the online tool, you can easily compare quotes of different business policies, quickly identifying those that match your needs while offering competitive prices.
This process saves valuable time, ensuring you secure top-quality protection without wasting effort searching for the best deals. Additionally, these online tools can answer related questions, making it easier to consider relevant details before binding coverage.
Reduce risks to avoid expensive claims
As a responsible business owner, taking steps to reduce the risk of an expensive insurance claim is essential. There are many ways to do this, but a couple of approaches stand out to insurers: implementing thorough safety procedures and keeping your workspace free of clutter and other hazards.
Implement safety procedures
Implementing safety procedures in the workplace can help you and your employees better handle conditions that may cause or exacerbate incidents that could trigger a claim. By implementing these procedures, you can reduce the likelihood of accidents and the overall impact of an incident, should one occur.
According to OSHA, the Occupational Safety & Health Administration, safety procedures could include posting proper warning signs where necessary, equipping employees with protective gear appropriate to their roles and functions, instituting lockout/tag-out policies to prevent equipment malfunctions, and training employees on policies and procedures.
Maintain business cleanliness
Cleanliness is also key to reducing workplace accidents. This means regularly checking your workplace environment and eliminating clutter or damaged materials that can be hazardous. Taking these preventative measures may involve some small costs in the near term. Still, they can reduce long-term costs by preventing costly claims.
