If you think insurance is one of those “extra” expenses you can skip to save your small business money, you might want to reconsider. If something happens to you, an employee, a customer or your property, insurance may help to cushion the blow in case of financial or legal issues. Without it, should something go wrong, you might be dealing with long-term ramifications.
Evaluating your insurance needs is generally an important part of building your small business and mastering your financial planning. The types of small business insurance you need will depend on your unique business. Here are some options you may want to consider.
Why does insurance matter for a small business?
In a perfect world, we wouldn’t need insurance. Unfortunately, we don’t live in a perfect world! As an entrepreneur, you typically want to protect both your personal and business assets from unexpected damage.
“But wait a minute. What if I have an LLC? Doesn’t that protect me already?” In some ways, maybe, your business structure might help you a little bit. But you likely won’t be adequately protected without insurance.
Also, in some cases, your business may be legally required to have insurance in place—like worker’s compensation, unemployment, and disability coverage for your employees. You can typically learn more about this from your state’s Department of Insurance website or by contacting your local government.
Another time you may be required to have insurance is if you’re working with a lender to obtain something like an SBA loan. Some form of insurance is typically a requirement before they’ll approve your application.
7 types of insurance for small businesses
You typically have options when it comes to getting insurance for your small business. Let’s go through some of the most popular types.
1. General liability insurance
Also known as business liability insurance, this typically covers legal claims that anyone makes on your business as a result of accident, injury or negligence. It’ll generally protect your small business against payments due to personal injury, property damage, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
Essentially, it often protects you against claims that are due to normal business operations.
2. Business personal property insurance
Also referred to as contents coverage, business personal property insurance typically covers everything related to the loss and damage of company property due to events like fires, smoke, wind and hail storms, civil disobedience and vandalism.
It may also help to cover the cost of repairing or replacing tools, equipment, inventory, furniture, computers, and landscaping.
3. Building insurance
Building insurance typically covers everything related to the damage of commercial real estate due to fire, smoke, wind and hail storms, civil disobedience, and vandalism.
The difference between building insurance and business personal property insurance is that the former often covers only things that are attached to the building itself.
4. Vehicle insurance
If your small business relies on motor vehicles for regular operations—like if you’re a florist who delivers flowers in a company car—auto insurance may help to protect them. Depending on your specific plan, it may cover many of the same things that your personal automobile insurance can, like collision, medical payments, and uninsured motorists.
5. Worker’s compensation
If an employee becomes ill or gets injured on the job (for example, if they slip on a freshly mopped floor), worker’s compensation helps cover your small business. It may also protect the business in the event that an employee sues you due to workplace conditions that caused their injury or illness. Learn more about the difference between general liability and worker’s compensation.
6. Professional liability insurance
For small businesses that provide specialized services to customers, additional liability coverage may protect them from financial losses as a result of illegal activity, error and negligence. It’s also referred to as errors and omission (E&O) insurance.
For example, let’s say that you have an accounting firm. You make a mistake in a client’s books, and it ends up costing them significant money, so they sue you. This is where professional liability insurance may be able to help.
7. Homeowner’s insurance
Do you run your small business from your home? Homeowner’s insurance might be necessary to protect against damage and injury caused by unexpected events, like fires, accidents, and theft. You may also be able to incorporate add-ons like product liability insurance, flood insurance, and accounts receivable insurance.
How to buy business insurance
Insurance typically helps protect you, your employees and your business as a whole should something happen. When trying to pick a plan, consider the following:
- What unique risks do you face due to your industry and location?
- What exactly do you need to protect—real estate, vehicles, inventory?
- How do your potential plans among different insurance companies compare in terms of metrics like APR, interest rates, terms and benefits?
If you’re at all unsure of what to go with, speaking to an insurance agent you trust is typically a prudent idea. The Small Business Administration also offers a local assistance program to help connect you with local mentors through organizations like SCORE, the Women’s Business Centers and the Small Business Development Centers.
Your small business needed insurance
Insurance is generally beneficial and possibly even legally required for your small business. You may make evaluating your insurance needs simpler by considering the type of small business you run, what industry you’re in, and what specifically you want to protect. There are typically various types of insurance—like general liability insurance, vehicle insurance, and building insurance—to suit a variety of needs.