As a small business owner, you probably don’t have unlimited resources to weather every financial storm that comes your way.
Whether you’re a sole proprietor or have dozens of employees working for you, business insurance helps protect you from financial losses due to theft, property damage, lawsuits, workplace injuries or other accidents. Without it, you could be hit with massive bills from a single incident.
Depending on your location and industry, your state may have laws requiring you to purchase certain types of insurance — check with your state’s insurance department or financial services to learn more.
Plus, clients may need you to have specific kinds of coverage to work with you. For example, if you’re an independent contractor and want to bid on a contract, a client might ask you to provide proof of insurance.
Even if you aren’t legally required to buy business insurance, having the right coverage helps protect you from the unexpected. It gives you the peace of mind to focus on growing your business.
Types of insurance for small businesses
The insurance coverage that’s right for your business depends on multiple factors, including the industry you work in, whether you have employees, the equipment you have and more.
Here are six common types of small business insurance to consider:
1. General liability
Most business owners start with general liability insurance because it provides coverage for the most common risks you’re likely to face as a business owner.
This type of coverage helps protect you if you’re held responsible for an injury to someone other than an employee or for damaging someone’s property.
If a client accuses you of libel, slander or copyright infringement, it helps pay for a legal defense and settlements or judgments that may be awarded if you’re found liable.
2. Commercial property
Commercial property insurance helps protect all the physical items needed to operate your business: inventory, business equipment and furniture and physical structures. It’s useful. Property insurance also covers any improvements or upgrades you make to your workspace.
You might think you only need property insurance if you own the building. However, even if you lease or rent a space, you need business property insurance to cover what’s inside of it.
3. Workers’ compensation
Most states require businesses with employees to purchase workers’ comp insurance, which helps pay for medical expenses and lost wages if an employee gets hurt or sick on the job.
Even if you’re a sole proprietor without employees, you may want to consider getting workers’ comp insurance business owners coverage. Your policy can help you in cases that aren’t covered by your health insurance.
4. Commercial auto
Just as your personal auto insurance policy protects your private vehicles, commercial auto insurance helps protect vehicles you use in your business. This coverage can help pay for injuries and property damage from a work-related accident.
5. Professional liability
This is also known as errors and omissions (E&O) insurance. Professional liability coverage helps protect you if a client accuses you of making a mistake that costs them money or failing to deliver on a business agreement.
It covers settlements and judgments if you’re determined to be at fault. And it helps pay for legal and court costs to defend against a claim — even if you didn’t do anything wrong.
6. Tools and equipment insurance
If you take your tools to job sites, tools and equipment insurance can help pay to repair or replace your equipment if it’s damaged, lost or stolen. You can add this type of coverage to your general liability policy.
When to buy small business insurance
If you’re getting ready to launch your small business, buying the business insurance you need as soon as possible is important. If you don’t, you may have to pay for all the related expenses after an accident.
But starting out is not the only time you may need to buy new insurance policies. As your small business evolves, it’s essential to frequently review your coverage frequently to ensure it still meets your needs.
Here are eight situations in which you may need to review or purchase additional coverage:
1. Your business operations have changed. Different types of businesses need different types of insurance. You may need additional coverage if you’ve changed your product or service offerings.
2. You added vehicles. If you purchased cars or trucks to use in your business, you’ll need to make sure they’re covered by commercial auto insurance. If you’re renting the vehicles, you may need hired and non-owned car insurance.
3. You bought new equipment. Did you recently buy a new excavator for your construction business or a lawnmower for your landscaping company? If so, you may need tools and equipment insurance, which can cover the cost of replacements or repairs.
4. Your employee count changed. The cost of some insurance types, such as workers’ compensation, is based on your payroll and the number of employees you have. You may need more coverage if you have more employees working for you now than you did when you bought your policy. And if you have fewer employees, you may need less insurance.
5. You moved. Have you outgrown your home office? Did you move to a new building in a different part of town? Have you opened additional locations? You’ll want to make sure you’re covered by commercial property insurance.
6. Your revenue has increased or decreased. The amount of coverage you need is determined, in part, by how much money you make. If you’ve experienced a significant increase or decrease in revenue, it may be time to adjust your coverage.
7. You changed your business structure. Whether you moved from a sole proprietorship to a partnership or an LLC to an S-Corp, if you changed your business structure you may need to update your insurance coverage to make sure you’re adequately protected.
8. Your policy is up for renewal. At a minimum, you should review your coverage once a year at renewal time. That way, you can ensure your coverage stays up-to-date with any changes to your risks and exposures.
How much is small business insurance?
There’s no such thing as a “typical” cost for small business insurance. The price is based on the type of coverage you need and the amount of risk your business faces.
In general, insurance costs more for businesses in industries considered more dangerous. So if you own a construction company where your employees work with lots of heavy machinery, you’ll probably pay more than a graphic designer who sits at a desk all day.
Companies with more employees also typically pay more than businesses with fewer employees.
The best way to get an accurate estimate is to complete an application and get a quote customized to your business needs.
NEXT makes protecting your small business easy
Our mission is to help small businesses thrive, so we offer customized insurance packages tailored to meet the needs of each small business we serve.
Simply answer a few questions, choose the package you need and get your certificate of coverage in 10 minutes or less.
If you have questions, our licensed, U.S.-based insurance advisors are ready and waiting to help.
