There is insurance for just about everything (even paranormal infestations). So it should come as no surprise that there are just as many types of insurance for your small business as there are for other parts of your life.
Nearly all small businesses will likely benefit from some amount of business insurance — and yes, I’m including freelancers and side hustlers here, too. But the specific type of insurance(s) needed by any given business will vary a lot by industry and services.
We’ll go over some of the most common types of business insurance so you can get an idea of what your business may need.
1. General liability insurance
As its name suggests, general liability insurance covers a wide range of liability situations that you may face as a business owner. Some common examples may be:
- Bodily injury and property damage liability
- Personal injury
- Medical payments
- Advertising injury (copyright infringement)
- Reputational harm (libel, slander, etc.)
Keep in mind that liability insurance covers damage done to third parties, not to you (the “first party”). For instance, it doesn’t cover theft or damage of your own property.
2. Professional liability / errors and omissions insurance
In addition to general liability insurance, small businesses that provide a service should consider professional liability insurance. This includes occupations like accountants, designers, consultants, and real estate agents.
Sometimes called an errors and omissions (E&O) policy, professional liability covers a business in case it is sued by customers or patients for presumed negligence. In other words, if a mistake is made, if something is forgotten, if something is simply bungled — and your business gets sued over it, an E&O policy could cover the legal fees and any settlement costs.
3. Cybersecurity insurance
There are over 1,000 data breaches every year. If your business is victim to one, you could face damages in all manner of ways. For one thing, your company’s data could be stolen, which can be costly to retrieve (if it’s even possible).
Arguably worse, customer information could be stolen (putting you on the hook for their damages). Cybersecurity liability policies can include coverage for things like data retrieval, digital security upgrades, and even customer reimbursements.
4. Commercial auto insurance
There are two common situations in which you may need commercial auto insurance:
- You are driving a vehicle owned by your business
- You are driving a personal vehicle while doing business
In either case, your personal auto insurance is unlikely to apply, making a commercial policy necessary. Commercial auto insurance covers a lot of the same things as personal auto insurance, including injury and damage liability, as well as vehicle damage from things like theft or weather events.
A common reason you may be using your personal vehicle for business purposes is if you work for a rideshare company as a contractor. While some rideshare companies offer limited insurance coverage for their drivers, it may have gaps, such as when you are not actively on a ride request. Since personal insurance policies may not kick in at all if you’re “on the clock,” you may need a rideshare endorsement to cover any gaps.
5. Commercial property insurance
Commercial property insurance is basically like homeowners insurance, but for property you buy for/with your business. It typically covers the building(s), as well as items like inventory and equipment, for covered events like fires or falling trees. Similar to homeowners insurance, you’ll likely need a special endorsement if you want to get flood insurance for your commercial property.
6. Business income / interruption insurance
If you have a good commercial property insurance policy, your building and inventory will likely be covered. But what about the business you lose while you repair or rebuild your office or store? That’s when business income (sometimes called business interruption) insurance kicks in.
This type of policy can help cover expenses if your business closure is due to a covered incident, such as from fire or theft. Typical coverage may include:
- Lost net income
- Mortgage, lease, or rental payments
- Loan or credit card payments
- Temporary relocation expenses
- Payroll expenses
- Routine bills
For example, say your small coffee shop has a fire. Commercial property insurance can cover the cost of repairs for the building, and may cover any equipment that is damaged or destroyed. But it won’t do anything about the money you’ll lose while those repairs are being done. Business income insurance can cover the lost income and help you make payroll in the meantime.
7. Home-based business insurance
While some types of businesses have to run out of commercial spaces, plenty of us run our small businesses from our homes. That doesn’t mean you can skip some sort of business property insurance, however — even if you have renters or homeowners insurance.
Typical homeowners insurance has limited coverage for equipment and/or inventory related to a home business. If your existing policy doesn’t offer enough coverage, you may need a home-based business policy to get adequate protection.
8. Special event insurance
Many types of special event insurance are advertised to people organizing their own events, but it could also be beneficial to pick up if you’re a professional organizer. This type of coverage protects event planners under all manner of scenarios, such as injuries, damage to venues, and sudden weather events. It can also apply to damages should a vendor go out of business or the event is canceled.
9. Intellectual property insurance
There are two main types of intellectual property (IP) insurance:
- Infringement defense: This is what you need if your company infringes upon someone else’s IP and gets sued
- Abatement enforcement coverage: This is what you need if you need to sue someone else for using your IP.
Many general liability policies will include some sort of coverage for infringement under their advertising liability clauses.
However, if you’re in a highly creative field and your intellectual property is your bread and butter, you may need a separate policy or endorsement with abatement enforcement coverage to help you protect your own trademarks, patents, and other copyrights against theft or misuse.
10. Worker’s compensation insurance
If you have any employees, worker’s compensation insurance is a mandatory legal requirement. Not having the required worker’s compensation insurance can result in heavy fines.
A typical worker’s comp policy will cover a lot of related expenses should an employee become sick or injured while on the job. This can include:
- Medical bills
- Lost wages
- Funeral expenses
- Death benefits
Some worker’s comp policies may also help cover legal expenses should there be lawsuits as a result of the covered incident or illness.
11. Product liability insurance
No matter how many rounds of testing your products go through, something can still go wrong. If that happens, you’re going to want insurance that covers your products. Product liability insurance helps protect your business should a product you produced, distributed, or sold prove defective and cause personal injury or bodily harm.
Note the last bit about injury and harm. This kind of insurance won’t kick in if there’s a misprint on a t-shirt and you need to hand out a refund. But if the t-shirt turns out to be radioactive and your customer suddenly has two heads, well, then you probably have a product liability claim.
12. Commercial umbrella insurance
Even the best insurance has a cap on how much it will cover. If you’re concerned your regular business insurance policies won’t offer enough coverage, a commercial umbrella policy could help cover any excesses.
For example, suppose someone slips and falls in your office and sues you for $1 million. If your general liability policy has a maximum of $500,000 for personal injury, an umbrella policy could cover the remaining half a million.
If you have a small home business and no employees, an umbrella policy may not make sense. But if you have many customers and/or employees visiting your commercial property, or spending a lot of time on other people’s properties, then it may be beneficial.
13. Bundling with a Business Owner’s Policy (BOP)
The same way you can bundle personal insurance, you can purchase business insurance that is already bundled. For example, many insurance companies will offer you a Business Owner’s Policy (BOP) that bundles both property and liability insurance into one policy. The specific coverage options will vary by provider, but you can often add additional endorsements if you have other needs.
Bundling your business policies into a BOP can make keeping track of them much easier. It may also be less expensive than buying individual insurance policies.
Some coverage is usually better than no coverage
No matter how small your business is, definitely consider getting the appropriate business insurance. Few of us see the problems coming until they happen. If — or, let’s face it, when — something goes wrong, you’ll be glad you were prepared.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.