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Small business insurance 101: Learn the basics

Small business insurance 101: Learn the basics

By Kim Mercado
Feb 3, 2022
9 min read
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Getting insurance for your business doesn’t have to be confusing. Let's get back to basics to help you understand insurance and figure out what's relevant to you. This "Small Business Insurance 101" guide gives you a simple overview of insurance so you can make informed decisions for your business.

If you have questions about specific terms, you can also check out our articles on terms like premium, deductible, insurance limits and riders in insurance.

In a hurry? Jump to the info you need:

What is an insurance policy?

At its core, an insurance policy is a contract you have with an insurance company. Typically, when you purchase business insurance, your contract is on behalf of your business. 

Although your policy might look daunting with lots of pages, customers are generally only concerned with a few details in there:

  • The common policy declarations. Usually found at the beginning of the policy, this page is the basic information that defines the policy, such as names of the insured, coverage dates and more.
  • The declarations page. Often the most often used and viewed page of the policy, this page summarizes your coverage information.

Altogether, your policy will state: 

  • The name of the person or business which is being insured;
  • What type of coverage you’re getting;
  • The limits of the policy;
  • The maximum it will pay out in a given occurrence or year. 

Small Business Insurance 101 TIP: Your insurance policy generally lasts for 12 months. This time period is called the "policy term."

How do I get an insurance policy for my business?

Traditionally, the process of getting insurance for your business went something like this:

  1. Send in an application form and wait to get a response from the insurance company. Or you make an in-person appointment, wait for your appointment and maybe take time off work to go to it. 
  2. If your application is accepted, you’ll get a quote for your insurance policy. 
  3. Pay for the full year all at once and sign the policy. 
  4. Call and request your certificate of insurance as needed when the office is open, and someone can help you. Pay an additional fee per certificate/additional insured, usually around $15.

Most entrepreneurs are busy and don't have time or money to waste on long, drawn-out, expensive insurance processes and policies. The modern way of getting insurance shakes up the whole process. 

For example, here's what the process of buying your business insurance looks like with us:

  1. Go online whenever you want and get a quote. Pajamas at 11:00 p.m.? No problem. Saturday at 9:00 a.m.? You got it.
  2. Choose between 2-3 affordable options, customizing your package with only the insurance you need.
  3. Pay your premium monthly instead of annually to ease your cash flow (no, we don't charge extra for this) and cancel online anytime.
  4. Share your Live Certificate of Insurance with anyone you need, whenever you need, for free.

insurance for your business

What are common types of insurance for business owners?

Your insurance needs depend on your kind of business, your specific risks, and your location. Here are a few of the most common types of business insurance.

General Liability insurance

This is the most common kind of liability coverage and will benefit most businesses. General liability insurance covers third-party (non-employee) bodily injury and accidental property damage. It also provides coverage if you are forced to defend an accusation of libel or slander.

Commercial Property insurance

Like homeowner’s insurance, commercial property insurance covers damage or vandalism to business property that you own or rent as well as your work inventory and equipment up to policy limits. It also covers business interruptions and protects owners against the loss of business income due to temporary closures.

Business Owner’s Policy (BOP)

A business owner’s policy or “BOP” combines two policies in one neat package: general liability and commercial property insurance. This popular type of policy helps small business owners save money by bundling two policies in one while getting all the business insurance coverages available in those two types of insurance.

Workers’ Compensation insurance

If you have any employees, you’ll need workers’ compensation insurance as it’s required in most states. In the event of an on-the-job injury, this insurance helps with lost wages, medical expenses and more.

Professional Liability insurance

If you offer professional services, you need professional liability coverage. It protects your business against civil lawsuits, negligence claims and accusations related to professional mistakes. For instance, medical malpractice insurance is a type of professional liability insurance doctors might have. This insurance is also called errors and omissions insurance (E&O).

Commercial Auto insurance

If you drive to different job sites, make deliveries or regularly use your vehicle for business purposes, consider getting commercial auto insurance. It covers accident-related costs, like towing, repairs and rental reimbursement. Your personal auto insurance usually won’t cover business-related accidents.

Tools and Equipment insurance

Tools and equipment insurance is a good choice for anyone who brings their equipment to different locations to get a job done. If your work gear, tools and equipment are damaged or stolen, insurance can help repair and replace them.

Can I cancel my insurance policy? Can the company cancel my policy?

Many companies will not allow you to cancel your policy. And, even if you can cancel it, you usually can't get back the money you've spent. 

However, things change and sometimes you need to cancel, which is why NEXT customers can cancel their insurance policies at any time. We'll also refund any coverage period you've paid for but not yet used. 

Small Business Insurance 101 TIP: Other companies may not do this, and you could be stuck having paid for coverage for the whole year that you don't need. It's worth checking a cancellation policy when buying a liability policy. 

An insurance company can cancel your policy if you don’t pay your insurance premium. Or, they can cancel your coverage for other reasons, including fraud, material misrepresentation or performing work not covered by your policy.

If your policy is canceled, the cancellation is called an endorsement, which means a change to the original policy. Sometimes, policies can be activated again using a reinstatement if canceled mid-term.

Introduction to small business insurance

What happens when my policy expires?

When your policy reaches the end of the term, it expires and needs to be renewed. In most cases, NEXT automatically renews your policy — so you're always covered — unless something has changed about your circumstances.

With other insurance companies, you'll likely need to apply to have your policy renewed at the end of the term. Your insurance company can also choose not to renew your policy if: 

  • You have had a high number of claims;
  • Your business has changed, making you ineligible for your policy; or
  • You have become a much higher-risk customer. 

Small Business Insurance 101 TIP: When your policy is renewed, it’s considered a new policy. With many insurers, you’ll have to request a new certificate of insurance. If you're a NEXT customer, don't worry; all your Live Certificates get updated automatically with your new information.

Who makes my insurance policy?

What are insurance agents, insurance carriers and insurance brokers? There can be quite a few people involved in your insurance policy. But what’s the difference between these parties?

First, it’s the insurance company that prepares your policy. Often, they are the ones that handle claims you make. The insurance company is like a manufacturer that creates a product. In this case, the product is the insurance policy instead of a piece of clothing. 

The insurance carrier carries or underwrites the policy. If you need to make a claim, the insurance carrier is the one who pays you the money. 

The insurance agent, or insurance broker, connects you with the insurance company. An agent and a broker have almost the same job — they both help you get insurance. The only difference is that an insurance agent works for an insurance company while an insurance broker works for you.

Hi, we’re NEXT Insurance

NEXT Insurance combines the best of insurance agents and brokers. We use technology to cut out the dependence on "middle man" services to give our customers affordable, tailored policies. 

You can apply online, get a quote, see policy options and purchase coverage — all in less than 10 minutes. We’re 100% online, so you can always access and management account, even if you need a Live Certificate at 2:00 a.m. 

If you have questions about your policy, terms, or coverage issues or need to make a claim, we’re available to help. Our licensed, U.S.-based insurance professionals are ready with answers and available to help you.

Get started with a quote now.


 

Small business insurance 101: Learn the basics

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About the author
Kim Mercado is a content editor at NEXT's blog, where she writes and edits posts for small business owners. She is an experienced marketing professional and loves helping entrepreneurs solve their business challenges. You can find Kim trying new recipes and cheering the 49ers.
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