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Operating Without Insurance? 9 Types of Business Insurance You Need to Know About Right Now

Updated Nov 06, 2023

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Numerous threats and risks can harm your business’s operations. If you lose a lawsuit, you may face bank seizures and wage garnishments. Lawsuits aren’t the only concern. Disasters can strike at any time and cause a financial crisis. And even if your business is incorporated, you can still be held personally liable for your organization’s debts.

Operating without business insurance can be disastrous for your company. The right business insurance can protect your organization, minimize its financial risks, and help you plan for – and mitigate – the unexpected. [Learn more about the different types in our guide to business insurance.]

We’ll explore why it’s crucial to have business insurance and highlight nine essential policies your business needs. 

Why your business needs insurance

When something goes wrong, your business is financially responsible for the repercussions. Incidents like accidents and injuries can be extremely costly: The CoverHound platform reports that, according to the Institute of Insurance Information, the average general liability claim for bodily injury is more than $16,640. 

Most small businesses can’t survive many devastating financial claims, so transferring financial responsibility to an insurance company is the best solution. 

Think about your daily business operations. If you were shut down because of a fire, could your business survive? If someone filed a claim for tens of thousands of dollars, could your business pay it without taking a significant financial hit? [Related article: The Insurance Claims Process and How to File]

For your business to survive and thrive, you need adequate business insurance to cover your biggest risks. 

Types of insurance your business might need

When you’re choosing business insurance, there are numerous policy types to consider. We’re highlighting the nine business insurance types most likely to protect your business.  

TipBottom line

Consult your prospective business insurance broker to identify your company’s specific needs and make sure you have adequate standard and specialty insurance coverage.

Liability insurance

Since accidents are unpredictable, liability insurance is critical for business owners. Whether those accidents happen onsite or offsite to a bystander or customer, your company may be liable. Liability insurance covers attorney fees, medical expenses and any damages for which your company is legally responsible.

Consider purchasing three types of liability insurance: general, professional and product liability.

  • General liability insurance covers accidents that happen as a result of your business operations when someone is injured or their property is damaged.
  • Professional liability insurance is also called errors and omissions insurance. It protects service providers from claims of failure to perform their professional duties or claims that the service provider omitted important information or facts. Professional liability insurance is valuable for any service-based firm, such as those that employ accountants, attorneys, insurance agents and cosmetologists.
  • Product liability insurance is essential if your business creates physical products. Product liability insurance covers you if a product you sold, manufactured, or distributed causes bodily injury or property damage.
Did You Know?Did you know

Many general liability policies contain coverage for product liability. This means you can get one policy to cover two risks and potentially save money on business insurance.

Property insurance

Property insurance is essential for business owners who need to protect themselves against the risk of losing their property – including computers, equipment, inventory and supplies – to fire, theft, vandalism and weather. This coverage type includes several specialized insurance forms, such as flood, fire and earthquake insurance. There’s also commercial property insurance, which covers buildings and property your company owns or leases.

You may even want to consider mobile device insurance coverage, which specifically covers the mobile devices you provide for employees.

Business interruption insurance

Business interruption insurance covers any lost income your business experiences after a disaster, including a natural disaster; a fire in the building where your office is located; or a street closure that keeps customers from accessing your business.

Many new entrepreneurs don’t purchase business interruption insurance because of the cost, but as natural disasters increase, this coverage type should be a serious consideration. According to the National Oceanic and Atmospheric Administration’s National Centers for Environmental Information (NOAA NCEI), in 2021, there were 20 weather- or climate-related disasters in the U.S. that caused in excess of $1 billion each in losses.

Did You Know?Did you know

A business owner’s policy is a combination policy that includes general liability, property insurance and business interruption insurance.

Disability insurance

Disability insurance provides you with income if you can’t complete your job’s core responsibilities. Disability insurance helps replace a significant portion of a business owner’s income in cases of injury or illness.

While disability insurance isn’t designed to replace your entire income – it replaces between 45% and 65% of your gross income – it’s a way to mitigate the potentially devastating financial effects of a long-term disability. 

Workers’ compensation insurance

Workers’ compensation insurance protects your company from being legally responsible for an employee’s injury or illness. It also provides benefits like medical treatment, temporary and permanent disability, and death benefits to employees for injuries and illnesses that occurred while they were employed by your company.

In exchange for workers’ compensation insurance, employees give up the right to sue your company for the incident that caused their injury or illness.

As a business owner, it’s critical to secure workers’ compensation because it’s required by law in most states and protects your company from liability.

Did You Know?Did you know

A workers’ compensation exemption is when a business doesn’t have to provide workers’ compensation insurance in specific cases. Exemptions vary by state, so it’s crucial to understand your area’s legal requirements.

Health insurance

Providing your employees with health insurance coverage and an employee benefits package that includes paid sick days can help protect your business from potential losses. According to data from the National Partnership for Women & Families, paid sick days give workers a sense of job stability that ultimately reduces employee turnover. Sick days also reduce the lost productivity levels caused by “presenteeism” – when employees show up to work sick and can’t perform to the best of their abilities. Presenteeism costs the U.S. economy an estimated $160 billion annually. 

Health insurance and paid sick days also serve to keep illnesses from spreading and affecting other employees and customers. 

According to eHealth, affordable group rate health plans provide these additional benefits to a business: 

  • Premium tax deductions
  • Incentives for new hires
  • Increased employee retention
  • Improved employee job satisfaction
  • Healthier, more productive employees

Commercial auto insurance

Having work vehicles out of commission can create a severe workflow problem. Also, any accidents you or your employees have while driving a company vehicle can create significant financial issues for your business.

Commercial auto insurance protects your company’s vehicles and covers any bodily injury or property damage caused by an accident for which you’re responsible. If you don’t own any commercial vehicles, but your employees regularly use their own vehicles to conduct company business, it’s a good idea to purchase non-owned auto liability insurance to protect your company in cases where a driver is uninsured or underinsured.

Directors and officers insurance

Directors and officers (D&O) insurance typically covers any costs or damages that result from directors or officers in your organization being involved in a lawsuit. D&O coverage helps protect your organization from any actions that could affect the company’s ability to operate.

Without D&O coverage, high-level executives, board members and other stakeholders might hesitate to become part of your company because they’d be risking too much. Without a D&O policy, they could be sued personally. When D&O coverage is in place, the insurance pays any costs resulting from lawsuits. A D&O policy also protects the personal assets of stakeholders if the company declares bankruptcy.

Cyber insurance

Cyber insurance covers the many digital risks a company faces, including ransomware attacks, malware and data breaches involving sensitive customer information. If bad actors access critical data, like Social Security numbers, credit card numbers, health records or other personal information, your business could be liable for penalties and the cost of monitoring consumer credit reports. 

Cyber insurance helps address and rectify any malware issues affecting your system, pays ransomware ransoms, helps notify customers of data breaches and assists in restoring the identities of those affected. It can also help recover compromised data and repair damaged computer systems. 

Genia Stevens contributed to the writing and research in this article. This article does not serve as legal advice or provide a complete list of insurance coverage for a business.

Kimberlee Leonard
Contributing Writer at business.com
Kimberlee has spent the past 20 years either directly involved in insurance and financial services or writing about it. She’s a former Series 7 and 65 license holder and former State Farm agency owner. As a small business insurance expert, her work can be found on Fit Small Business and Thimble.
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