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What to Know When Choosing Business Insurance

Scott Gerber
Scott Gerber

Choosing an insurance policy for your company or employees is a major step, and one not to take casually.

Insurance for your business is an essential safety net. However, picking the right coverage and policies can be complicated. Small businesses need to understand the most efficient way to spend their money and get the most protection for their company and employees.

The problem is that insurance needs vary greatly by business type and industry. For instance, while many businesses look at general liability insurance, a remotely operated marketing agency may not need the same types of coverage as a brick-and-mortar retail store or a construction firm with expensive and potentially dangerous equipment.

Employee needs also factor into the discussion. Health insurance is important, and a big step for a growing small business. It can also be challenging to figure out exactly what suits your team best. However, health insurance isn’t the only type of insurance businesses need. There are various other policies businesses should consider.

Editor’s note: Looking for the right insurance for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

Types of business insurance to consider

A key step in choosing business insurance is figuring out which types your company needs and doesn’t need. These are the most common types of business insurance:

  • Health insurance. Although health insurance doesn’t directly cover your business, it’s among the most important types of business insurance, because it helps your employees get the medical care they need to stay healthy. In the end, it helps protect your bottom line, since healthier employees are more productive. Additionally, most full-time employees expect health insurance as part of their benefits package.
  • Professional liability insurance. Professional liability insurance protects against lawsuits that your clients or customers file to allege that your company has not adequately carried out its promised duties.
  • Commercial property insurance. Commercial property insurance helps cover the costs of fires, explosions, natural disasters, vandalism and other types of business property damage. Note that some policies limit coverage to the types of property damage specified in your contract, while others provide more flexibility.
  • General liability insurance. If you face lawsuits for personal injuries (including those sustained in the workplace) or advertising injuries, general liability insurance can help cover your costs. It can also help with the costs of any damage that your company or employees inflict on another entity’s property or belongings. [In the need of general liability insurance? Check out what we recommend as the best insurance for small businesses.]
  • Business owners insurance. A business owners policy combines general liability insurance and property insurance into one policy, typically to save money on premiums. When these policies are bundled together, the premium prices are significantly less than the total of your theoretical premiums for separate general liability and commercial property insurance plans.
  • Cyber insurance. While proper cybersecurity software can be a substantial safeguard against cyberattacks, you may want to take out a cyber insurance or data breach policy for extra security. Since even the best cybersecurity programs don’t guarantee protection from especially complex cyberattacks, cyber insurance could help to protect your bottom line.
  • Commercial auto insurance. If your company’s operations include driving company-owned vehicles, you might want to take out a commercial auto insurance policy. Like personal auto insurance (which won’t cover your business vehicles), commercial auto policies can help cover property damage and injury claims after accidents that anyone driving your company vehicles causes.
  • Workers’ compensation insurance. Unlike the other types of insurance types listed here, workers’ compensation insurance is usually not optional. That’s because it gives your employees a legal mechanism to receive wages lost to injuries or illnesses stemming from their work for you. Workers’ compensation plans can also cover employee medical bills related to these injuries, saving you the burden of paying out of pocket or facing an employee lawsuit.

How to choose business insurance

To help you in your research and decision-making process, we asked small business owners from the Young Entrepreneur Council what they believe small businesses should do and consider when looking for insurance, either for the company or for the employees, based on their own experiences.

1. Shop around and speak with multiple insurance providers.

“I would suggest consulting with a few different insurance agents before deciding which types of policies to purchase. The benefits and costs will vary between providers, so you should explore multiple options to find the best fit for your needs.” – Matthew Podolsky, Florida Law Advisers P.A.

2. Choose a plan that will scale with you.

“When you’re first able to get insurance for your employees, it feels good. When you’re shopping for company insurance, think about whether the prices will work as your business scales. Some insurance agencies have individual employee costs that make scaling with their company difficult. Planning for growth is helpful in all areas of business, and insurance research is no different.” – John Turner, SeedProd LLC

3. Understand how your insurance agency calculates its quotes.

“Of course, you want to shop around for different insurance companies and get the best quote, so you need to find out how the insurance company calculates its quotes. They should be transparent about this process and what they consider. For instance, do they take into account the size of your company and your industry? Knowing how they assess your business will allow you to be more informed.” – Thomas Griffin, OptinMonster

4. Look at the total per-employee cost of your policy.

“When you’re making a deal with a new insurance company, always ask what the final cost of the program will come out to per employee. There’s a chance you could get blindsided and be forced to pay an additional premium, depending on the situation of the employee. Learning about the cost changes over time can help you make smarter decisions and choose the right insurance company for your business.” – Chris Christoff, MonsterInsights

5. Don’t make assumptions about what’s covered and what’s not.

“Every business is different, and you should choose insurance based on your location, the type of business you own and other factors. If you have a basic plan such as property insurance, don’t assume that this will cover other possible risks, such as natural disasters. Consider the types of risks your region is subject to, such as floods, fires, or earthquakes, and make sure you’re covered for these.” – Kalin Kassabov, ProTexting

6. Look beyond general liability insurance to cover all your risks.

“It’s important that you read the insurance contracts in detail to find out what is covered and what’s not. Usually, small businesses will start out with the general liability insurance and do their own risk analysis to find out if they need to get any additional insurance.” – Syed Balkhi, WPBeginner

7. Know your specific industry’s business insurance obligations.

“It’s a must to understand what your insurance obligations are as a small business. If you neglect any area, it could mean serious risk for your company. It’s also important to understand that not all small businesses need to purchase insurance, so know what you’re getting into.” – Stephanie Wells, Formidable Forms

8. Read your insurance policy carefully, looking for any gaps.

“Make sure you read your business insurance policy before making a final decision. Each carrier has its own policy with different requirements, and reading it front to back ensures you don’t encounter any gaps that could hurt you in the future.” – Jared Atchison, WPForms

9. Splurge on the maximum coverage.

“As Murphy’s law states, anything that can go wrong will go wrong. Enlist an expert to identify all relevant insurance areas, and buy the broadest coverage with the highest limits you can afford.” – Mahesh Chaddah,

10. Narrow down your options before searching seriously.

“When you’re shopping around for insurance, you may feel like you need to find every possible option out there before you make a decision. However, this only serves to frustrate you, since remembering and comparing a dozen policies can be very hard to do. Ask for recommendations from peers, and try to restrict your options. You’ll make a good decision in less time.” – Blair Williams, MemberPress

11. Find and work with a broker you can trust.

“Because of the complexities entailed with insurance and the lack of expertise among most business owners in understanding the appropriate plans and sources of coverage for their businesses, it is imperative to find and work with a suitable insurance broker. When seeking an insurance broker, it is important to find someone extremely knowledgeable with strong common sense who you deeply trust.” – Adam Mendler, The Veloz Group

12. Do a thorough risk analysis to understand your coverage needs.

“Start by considering what could happen that would leave you liable or open you up to an excessive outlay of cash. Once you’ve identified the risks, you know what you need insurance to cover. Talk with several providers to see what options they offer, and check the company’s ratings – if you need to make a claim, how they operate will be more important than saving a few bucks on your premium.” – Keith Shields, Designli

13. Seek out clauses specific to your niche.

“When searching for policies, be sure that your insurance agent understands your business niche. In my case, in addition to the general liability insurance, the errors and omissions insurance is also important because, as a digital marketing agency, we deliver social media and content marketing services, where there are always risks of accidental copyright infringement.” – Matthew Capala, Alphametic

14. Anticipate your business’s future needs.

“One thing that can make business insurance so expensive is continually having to modify or expand your coverage as your business develops and enters new markets. To prevent this from being a major issue in the future, try and anticipate your needs ahead of time, and discuss them with insurance companies to find a better deal.” – Bryce Welker, Crush the CPA Exam

Max Freedman contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

Image Credit: Kerkez / Getty Images
Scott Gerber
Scott Gerber
Community Member
Scott Gerber is the founder of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses. Gerber is also a serial entrepreneur, regular TV commentator and author of the book Never Get a “Real” Job.