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Business Insurance Guide
This guide breaks down the basics of business insurance and what you should look for when searching for a policy.
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Business owners face an assortment of risks running their companies and those risks vary based on numerous factors. Business insurance helps cover the costly financial risks of claims and lawsuits against your business. However, it can be challenging to decide on the type and amount of business insurance to get. This guide answers some of the most common questions owners have about business insurance.
Who needs business insurance?
Every business needs some form of business insurance to protect against the costs associated with claims and lawsuits as well as damages to people and property. Customers, employees and other businesses could sue your company for a variety of reasons, even if you did nothing wrong.
For example, someone could get injured by falling in front of your retail store or misusing a product you sell, which could result in a costly lawsuit. Business insurance would cover the cost of the lawsuit, whether you win or lose, as well as the cost of going to court.
Legally required insurance
Some industries and professions require business owners and professionals to have specific types of business insurance. For example, medical professionals must have medical malpractice insurance, financial and investment professionals must carry professional liability insurance and a contract with a client might require your business to maintain errors and omissions insurance. Depending on your state and industry, your business might be required to have workers’ compensation insurance as well.
Do you need business insurance for a limited liability company (LLC)?
Registering as an LLC should protect your personal assets against a lawsuit or claim. However, it will not protect your business assets if you’re sued. Also, your personal assets could be at risk if they’re not completely separate from your business. Business liability insurance would protect your business’s assets against many lawsuits, so it’s a wise idea to obtain it even if your LLC doesn’t technically need it.
What types of business insurance do you need?
The type of business insurance you need depends on various aspects of your business. Below are the most commonly required types of business insurance:
- General liability insurance
- Commercial property insurance
- Commercial auto insurance
- Business owner’s insurance
- Business income insurance
- Professional liability insurance
- Errors and omissions insurance
- Product liability insurance
- Workers’ compensation insurance
- Cybersecurity insurance
General liability insurance
General liability insurance provides your business with protection against lawsuits and claims of property damage and bodily injury. This type of insurance can cover the legal costs involved in defending your business against the lawsuit, judgments and settlements from a lawsuit, repair costs if your employee damages a client’s home or place of business while doing work there and a customer’s medical expenses if they get injured at your place of business.
Commercial property insurance
Commercial property insurance provides protection for your business’s physical location and other property, such as tools, equipment, furniture and inventory, against costs incurred from events that damage your business. Depending on the policy, covered events may include fires, explosions, natural disasters, terrorism and vandalism.
Commercial auto insurance
Commercial auto insurance provides your business with coverage against automobile accidents if you or your employees are at fault, such as when an employee gets into an accident while making a delivery in a company van. This type of insurance is ideal if you employ people who drive company-owned, leased or rented vehicles or if your company owns, leases or rents cars. It also provides protection for employees who use their own vehicles to do their job. [Related article: Commercial Car Insurance Laws by State]
Business owner’s insurance
Business owner’s insurance, or business owner’s policy, combines general liability insurance and commercial property insurance in one policy. It provides the coverage of both types of insurance, but the premiums typically cost less than the individual insurance policies would if purchased separately.
Business income insurance
Business income insurance, also known as business interruption insurance, replaces income that’s lost when your business has to cease operations. The insurance covers instances of fire, weather-related damage, theft, explosion or other events described in the policy.
Professional liability insurance
Professional liability insurance provides your business with coverage against a client’s legal claim of negligence, malpractice or misrepresentation. The insurance company can pay your legal fees, judgments against you, settlements, compensatory damages, punitive damages and economic or business damages that result from the lawsuit.
Errors and omissions insurance
Errors and omissions insurance provides your business, employees and business professionals with coverage against lawsuits based on a client’s claim of inadequate work or negligent action resulting from your professional services. The insurance policy can pay your legal fees, court costs and any settlements up to the amount specified in your coverage.
Product liability insurance
Product liability insurance provides your business with coverage against expenses that arise if a person claims a product your business sold, made or distributed caused bodily injury, unlawful death or property damage. Like professional liability insurance, this insurance can pay your legal fees, judgments against you, settlements, compensatory damages, punitive damages and economic or business damages that result from the lawsuit. It also covers the injured party’s medical costs that arise from the use of the product.
Workers’ compensation insurance
Workers’ compensation is an insurance program that provides benefits to employees who become injured or ill while doing their job. The insurance covers the employee’s medical costs and lost wages while they’re out of work, as well as their rehabilitation costs so they can return to work or find a new job.
Workers’ compensation insurance also limits your company’s liability for legal claims when an employee sues your business for an illness or injury caused by work-related incidents. The right coverage amount for workers’ comp depends in part on state laws and the makeup of your workforce. [Learn about the workers’ compensation claims process.]
Cybersecurity insurance
Cybersecurity (or cyber liability) insurance provides your business with coverage against legal costs and damages related to cybercrime and cybersecurity issues. The insurance covers incident response costs; legal, forensic and breach management expenses; system damage and restoration costs; and system business interruption costs.
How much does business insurance cost?
While costs vary widely depending on the type of insurance, some business owners might be able to get a general liability policy for as little as $500 per year. Many factors will affect your premium, however, including the ones listed below:
- Type of business: Some types of businesses, such as law firms and medical offices, face higher standards and incur more lawsuits than those in other industries. As a result, they pay higher insurance premiums.
- Business size and number of employees and clients: Businesses with more employees and clients typically require more insurance coverage than single-person businesses.
- Coverage limits: Higher coverage limits expose the insurance company to more expensive lawsuits, so they’ll charge you higher premiums.
- Location: Insurance providers price insurance according to state insurance regulations and typical loss exposures in those states.
- Experience and number of years in business: Your level of experience and years in operation affect how high or low of a risk the insurer considers you and your business. More experienced professionals may pay less for insurance than a relative newcomer because they will have built up trust with their insurance provider and clients.
- Claim history: If your business or product has a history of claims, you and your insurance provider will be at a higher risk of potential lawsuits, so you’ll face higher insurance costs.
How do you get business insurance?
Getting business insurance involves contacting an insurance broker or insurance provider to purchase the specific type of insurance required for your business. Before you choose a policy, you must determine what type (or types) of insurance you need. We recommend taking the following steps:
- Evaluate your risks. Create a list of possible losses or liabilities you could face in your business, such as personal and business property, vehicles, equipment, supplies, personnel and data. Consider the types of lawsuits, situations, accidents or natural disasters that could affect your business.
- Find a reputable insurance broker. Work with an independent commercial insurance broker who can help find the right insurance policies for your business’s needs and risks.
- Compare prices. Compare rates, terms and benefits for insurance policies from different insurers. Sign up with the provider offering robust coverage with a premium and deductible you can afford.
- Assess your needs annually. Your risks and liabilities will change and grow with your business. If you’ve purchased new equipment, moved into a new market, opened a new location or changed your operations, contact your insurance broker to discuss how your business has changed and how it affects your insurance needs.
How can you save on business insurance?
The costs of business insurance can add up, especially if you need more than one type of coverage. Follow these tips to save money on business insurance and reduce your premiums.
Work with your insurance broker.
A reputable insurance broker will be knowledgeable about the different types of insurance required and available for your business. They can provide advice on what insurance you need to protect against unexpected disasters or legal claims, as well as what insurance you can safely decline to save money. They can also advise you on what you need to do to lower your risks, such as investing in disaster planning, which can reduce your premiums. Keeping your broker informed of major purchases or changes in your business can also help your policy rates.
Shop around.
Every insurance company has different rates for different policies. Compare providers’ offerings to find the best rates for your business. Contact insurance companies and brokers with experience in your business type or industry. Compare quotes based on the insurance coverage and services they provide. Check the financial health of each insurer and see how they rate on consumer websites.
Purchase a package.
Packaged insurance policies, such as business owner’s insurance, which encompasses both general liability insurance and commercial property insurance, can be less expensive than individual insurance policies. You may also be able to bundle an auto policy with another type of coverage for savings.
Increase your deductible.
The deductible is how much you have to pay out of pocket on a claim before your insurance policy starts covering the costs. When you set a higher deductible, you typically pay lower insurance premiums. However, this is a trade-off — you don’t want a deductible so expensive, you can’t afford to pay it should the need arise.
Take action to prevent losses.
Your insurance broker or provider can give advice and information on ways to reduce your insurance costs. For example, updating your alarm system or fire prevention system might lower your premiums. Other strategies include investing in workplace health and safety measures, creating a disaster preparation plan and engaging in human resource intervention.
Kimberlee Leonard contributed to this article.
