Ben Luthi has been writing about personal finance for over a decade with the intent to help people improve their finances and lifestyle. He’s covered just about every personal finance topic under the sun for a variety of publications, including the Wall Street Journal, Fortune Recommends, Yahoo Finance, Experian, Credit Karma, NerdWallet, and many more. Ben lives near Salt Lake City with his two kids and two cats.
Becky Helzer is an editor at Insurify. She loves helping writers express their ideas clearly and authentically. With a diverse background in editing everything from curriculum and books to magazine articles and blog posts, she’s worked on topics ranging from home finance, insurance, and cloud computing to the best tools for home improvement.
A proud graduate of Colorado State University with a degree in technical journalism, Becky lives in Fort Collins, CO, with her husband and their two spoiled rescue dogs.
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Small-business insurance protects your company against financial losses from lawsuits, property damage, or unexpected disruptions.[1] Even if you operate as a limited liability company (LLC), which protects your personal assets, this structure won’t shield your business assets from all liability.[2] This is also true for sole proprietorships and microenterprises with few employees.
Here’s what you need to know about small-business insurance, average premiums, and how to choose the right policy.
Quick Facts
Many small businesses need insurance to satisfy leases, client contracts, or state licensing requirements.
Your industry, location, risk level, business operations, and payroll all determine your coverage needs and insurance premiums.
Bundling policies, raising deductibles, and improving workplace safety can help small-business owners reduce premiums without sacrificing essential coverage.
Small-business insurance defined
Small-business insurance is a collection of policies that protect your business income, people, and property. The three core protections of small-business insurance include liability, commercial property, and business interruption coverage.
This insurance can protect your business whether you run an online clothing boutique, a local landscaping company, or any other type of business. For example, imagine a customer slipping on a wet floor in your bakery and breaking an arm. In this scenario, general liability insurance helps pay the customer’s medical expenses and your legal fees if the customer sues you.
When you need small-business insurance
Most small businesses need insurance coverage from day one. As a business owner, you may need proof of coverage for various reasons, including:
Commercial leases: Landlords usually require business owners to have a general liability insurance policy to cover property damage or injury claims.
Client contracts: Many service agreements require professional liability or general liability coverage as part of doing business.
State or local licensing: Certain industries, such as construction or cosmetology, may require proof of insurance before the business owner can become licensed.
Employees on payroll: The federal government requires businesses with one or more employees to carry workers’ compensation coverage.
Important Information
Even if insurance isn’t mandatory for your type of business, going without it can expose you to significant financial risk. One lawsuit, accident, or property damage claim could interrupt operations or eliminate your cash flow — especially for startups. Protecting your business early on with the right policy can help ensure long-term stability and peace of mind.
Types of small-business insurance coverage
You can customize small-business insurance policies to fit your specific risks or bundle them into packages like a business owners policy (BOP). The following are the most common types of business coverage.
General liability insurance covers claims involving third-party bodily injury, property damage, and advertising injury. For example, if you run a social media campaign and accidentally use copyrighted material, your general liability insurance may cover you if the copyright owner sues you.
Also called errors and omissions insurance, professional liability insurance protects service-based businesses from claims of negligence, mistakes, or failure to deliver promised results. It’s ideal for consultants, accountants, designers, construction companies, and real estate agents.
A BOP bundles general liability, commercial property insurance, and often business interruption coverage.[3] It can be a good fit for small retailers and restaurants seeking comprehensive yet affordable business coverage.
Commercial property insurance protects buildings, inventory, and equipment from fire, theft, vandalism, and certain weather events. For instance, if a burst pipe causes your office to flood, commercial property insurance may help cover repairs.
This type of coverage is ideal for businesses with physical locations, equipment necessary for business operations, or regular inventory.
Often called workers’ comp for short, this type of insurance covers medical expenses, lost wages, and legal fees if an employee is injured on the job. Federal law requires it if you have employees.
Cyber liability insurance covers your liability and provides business recovery assistance if a data breach, ransomware attack, or cybercrime targets your company.[4] It’s essential for any business that stores customer data or proprietary information online.
As the name suggests, commercial auto insurance covers liability and property damage if you use vehicles in your business operations. If your rideshare vehicle causes an accident, someone steals your delivery van, or hail damages your business truck, this policy can cover vehicle repairs or replacement, medical bills, and other related expenses.[5]
Optional coverage add-ons for small businesses
Depending on your business, you might need more than just the basics. These optional coverages are worth considering, especially if your work comes with unique risks or responsibilities:
Product liability: If you sell physical products, this coverage can protect you if something you sell causes an injury or illness. It’s especially important for food, beauty, and manufacturing businesses.
Employment practices liability (EPLI): This coverage pays for legal costs if a current or former employee sues you for harassment, discrimination, or wrongful termination.[6]
Inland marine: A must-have for contractors, mobile service providers, and anyone who works outside a fixed location, this covers your gear in transit or on a jobsite.
Data breach expense coverage: If a cyberattack hits your business, this coverage helps pay for customer notifications, credit-monitoring services, and legal fees.
Liquor liability: For businesses that serve or sell alcohol, a liquor liability policy provides coverage if a customer causes bodily injury or property damage after drinking. Some states even require this coverage for businesses to get a liquor license.
Fidelity bonds: If an employee steals money or commits fraud, a fidelity bond protects your business financially. This coverage is a good safeguard for companies that handle sensitive financial data or customer assets.
What small-business insurance doesn’t cover
Regardless of which insurer you choose, all small-business insurance policies have exclusions. Review your policy terms carefully to understand what’s not covered.
These are some common exclusions of small-business insurance:
Intentional or criminal acts
Property wear and tear
Employee theft
Earthquake and flood damage
You can often buy endorsements and riders to fill gaps created by exclusions. As you shop around for coverage, carefully review your insurance options to ensure you’re not surprised when something you thought was covered isn’t.
How much does small-business insurance cost?
Small-business insurance premiums vary depending on several underwriting factors, including:
Industry: High-risk industries, like construction or food service, typically pay more than lower-risk fields like consulting or accounting.
Business size: The more employees or locations you have, the more coverage you’ll need — and the more you’ll pay.
Risk level: Your business may have higher premiums if it regularly interacts with the public, uses heavy equipment, or handles sensitive data.
Location: Operating in a densely populated or disaster-prone area can increase insurance premiums.
Payroll size: A larger payroll can mean higher workers’ compensation and liability insurance costs.
Your claims history, coverage levels, and deductibles also contribute to your monthly premiums.
How to save on small-business insurance
Small-business insurance is essential, but you don’t have to overpay for it.[7] With a few smart moves, you can trim your premiums while getting the coverage your business needs:
Shop around
Take time to compare insurance options from different companies or work with an independent insurance agency to find the best mix of coverage and cost.
Bundle your policies
Many insurers offer discounts for bundling multiple business insurance policies.
Raise your deductibles
Choosing higher deductibles can lower your monthly premium. Ensure you have the cash flow to cover a higher deductible if you need to file a claim.
Strengthen your risk management
Insurers reward businesses that take safety seriously. Training employees, installing security systems, and keeping your workspace hazard-free can prevent losses and lower premiums.
Review your coverage every year
Your insurance needs might change as your business grows or shifts direction. Take time annually to ensure your coverage still fits and offers the best price.
How to choose the right small-business insurance policy
When shopping for small-business insurance, focus on risks your business faces and requirements you need to meet — not just the lowest premium.
Consider these factors when choosing coverage:
Industry risks: A wedding photographer may need liability coverage for on-site client work, while a consultant may prioritize errors and omissions insurance in case of professional disputes.
Contractual obligations: Many commercial landlords require business owners to have general liability and property insurance as part of a lease agreement.
Licensing requirements: Some U.S. states require certain coverages for specific trades to operate legally. For example, surety bonds are often required for construction workers and contractors who work with government agencies.
Equipment or inventory value: Catering companies and restaurants with commercial kitchen equipment and food inventory often prioritize these when shopping for coverage.
Budget flexibility: A startup with tight cash flow might opt for higher deductibles to keep monthly premiums more manageable.
Where to get small-business insurance
You have options when shopping for small-business insurance. These are some common ways to find the coverage you need:
Online marketplaces: Sites like Insureon and NetQuote let you compare small-business insurance quotes from multiple insurers in one place.
Direct-to-consumer insurers: Insurers like Next Insurance and Hiscox offer tailored policies directly to small-business owners.
Independent insurance brokers: An independent insurance agency can walk you through your options with various insurers to help you find the right policy.
No matter how you shop, comparing insurance quotes is one of the best ways to find the right policy at the best price.
Small-business insurance FAQs
Below, you’ll find answers to frequently asked questions about small-business insurance.
Is small-business insurance legally required?
Some forms of small-business insurance are legally required, but whether you need those coverages depends on your location, business type, operations, and employee count.
How soon after launching your business do you need coverage?
Ideally, you’ll have your business insurance before opening your doors. Landlords, clients, and state agencies may require proof of coverage right away.
What insurance is mandatory if you have employees?
Most U.S. states require workers’ compensation insurance for businesses with even one employee. Workers’ comp covers medical expenses and lost wages if an employee gets sick or injured on the job.
How do you file a small-business insurance claim?
The claims process can vary by insurer. But if you need to file a claim for a covered issue, contact your insurer as soon as possible, provide details and documentation of the incident, and work with your claims adjuster to review next steps.
Ben Luthi has been writing about personal finance for over a decade with the intent to help people improve their finances and lifestyle. He’s covered just about every personal finance topic under the sun for a variety of publications, including the Wall Street Journal, Fortune Recommends, Yahoo Finance, Experian, Credit Karma, NerdWallet, and many more. Ben lives near Salt Lake City with his two kids and two cats.
Becky Helzer is an editor at Insurify. She loves helping writers express their ideas clearly and authentically. With a diverse background in editing everything from curriculum and books to magazine articles and blog posts, she’s worked on topics ranging from home finance, insurance, and cloud computing to the best tools for home improvement.
A proud graduate of Colorado State University with a degree in technical journalism, Becky lives in Fort Collins, CO, with her husband and their two spoiled rescue dogs.
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