Business Insurance: The Ultimate Guide for Small Businesses

Feb 3, 2020 | Main Blog

Business insurance is a form of protection small business owners can buy to safeguard their personal or business assets. Getting the appropriate coverage for your operations protects your assets by covering customer lawsuits, property damage, and other perils so that the costs that follow a disaster don’t put you out of business.

What Business Insurance Is

Business insurance is a way to protect your assets from risks you face every day as part of your business operations. Most businesses deal with third parties who may claim your business caused their property damage, bodily harm, or financial loss. Different types of business insurance covers these accusations by paying the associated costs.

Who Needs Small Business Insurance

Any small business owner who wants to protect assets and increase their chances of surviving a catastrophe needs business insurance. Without coverage, the money for repairs, medical bills, and legal fees would be out of their pockets. Small business owners may even be required to carry insurance as a condition of financing for buildings, equipment, or inventory.

Small business owners need insurance even when they are freelancers, work out of their homes, or sell products or services via online platforms. These practices are still businesses, and home insurance policies do not typically cover them. Insurance is also a smart investment for owners looking to sign new clients. Many larger companies only work with owners who have business insurance because it shows they are financially stable.

Common Types of Small Business Insurance Policies

Certain small business insurance policies are considered fundamental because they protect against risks that most business owners face. General liability is a good example of this because it covers claims that your business is responsible for someone else’s damages. Many business owners also get commercial property insurance because it pays for damages to their property.

Type of InsuranceWhat It Covers
General liability insuranceNon-employee claims of bodily injury, property damage, and reputational harm.
Commercial property insuranceDamage to business-owned property, including buildings and their contents.
Business owner’s policyCombines commercial general liability and property coverages.
Professional liability insuranceClients’ accusations of financial losses due to your negligence, mistakes, or omissions.
Commercial auto insuranceCosts associated with accidents involving vehicles owned or used by your business.
Workers’ compensation insuranceEmployees’ medical bills and lost wages resulting from a work-related injury.

Some of fundamental business insurance policies include:

General Liability Insurance

General liability insurance covers the costs associated with third-party claims of physical injuries, damaged property, and reputational harm, such as defamation and copyright infringement. For business owners, third parties are essentially anyone who doesn’t work for you. If a non-employee claims your business caused their damage, then general liability covers costs like repairs, medical bills, or your legal costs if the injured party sues.

Most small business owners can find general liability insurance that costs between $400 and $600 per year. Businesses that see more foot traffic or have employees often pay more because they face a greater risk of third-party lawsuits.

General liability covers some of the most common risks business owners face, so it’s important to find quality coverage. Start with a general liability insurance company that knows your industry and can accurately evaluate your risks.

Commercial Property Insurance

Commercial property insurance is protection for your business’ physical assets, including its facilities and their contents, such as office equipment, furniture, and fixtures. If these are damaged in a covered event, like a fire or burglary, then commercial property pays up to the insured amount minus your deductible.

Commercial property premiums typically start around $750 per year for small business owners, but this depends on the amount and value of the property your business owns. You need sufficient coverage to repair and replace items if they are damaged, and that means increased costs. Insurers also consider your building structure and location as well as any security or sprinkler systems you have.

Business Owner’s Policy

A business owner’s policy, or BOP, is a policy bundle designed specifically for small businesses. It combines general liability and commercial property insurance into a single product. Most BOPs also include business interruption coverage to pay for lost profits and ongoing expenses if a covered event causes you to pause operations. Some insurers also include other key coverages based on industry need.

Because BOPs bundle policies, insurers can offer them at a rate lower than what they might cost individuals. Many businesses can find BOPs for between $350 and $3,000 annually, depending on the amount of coverage and whether additional policies are added in.

Professional Liability Insurance

Professional liability insurance, also called errors and omissions, covers clients’ claims that they experienced financial losses due to your services. Policies typically pay for your legal defense plus settlements or court awards if a client says you made work mistakes, failed to deliver promised services, offered inaccurate advice, or were otherwise negligent in your performance. Professional liability is typically a policy included in accountant’s insurance and architect’s insurance because it’s designed for professionals who have advanced certifications.

Business owners who need professional liability typically pay between $400 and $1,000 per year. This price is largely dependent upon industry, with architects and engineers often paying higher premiums. However, insurers also look at business size, location, and risk management practices when determining premium.

Commercial Auto Insurance

Commercial auto insurance protects businesses that use vehicles in the course of their operations. Policies usually start with liability coverage for damages you or your insured drivers cause others, but can also include additional coverage for other events. For instance, business owners may want coverage for damage to their business-owned vehicles; damage to vehicles they rent, hire, or borrow; or medical expenses regardless of who is at fault.

Business owners generally pay between $750 and $1,200 for commercial auto. However, premiums are largely based on location because many states have minimum liability requirements. Business owners also pay more if they opt for additional coverages, such as collision or hired and non-owned auto coverage.

Workers’ Compensation Insurance

Workers’ compensation insurance pays for employees’ medical bills and lost wages if they suffer a work-related illness or injury. Some policies also include coverage for your legal defense if an employee claims their injuries are the result of your negligence. Every state except Texas requires business owners to carry workers’ comp, sometimes as soon as they have one employee. Policies can usually be purchased from workers’ compensation insurance companies, but some states require business owners use a state fund.

Workers’ comp premiums vary greatly. Small business owners typically pay anywhere from $500 to several thousand dollars, based largely on the number of employees and the types of risks those employees face in their work. State law governs workers’ comp, so location also plays a role in your overall costs.

How to Get Business Insurance

Small business owners can get business insurance online through brokers or directly from carriers. In order to get the appropriate coverage for your business, it’s important to first assess your risks and then to find providers who offer coverage that protects against them.

How to Pick a Business Insurance Carrier

Once you know your risks, you can start looking for a small business insurance company that has the policies you need. Most carriers specialize in certain industries, so you may want to check out online reviews or ask other business owners who they work with. Carriers are also receive ratings for their financial strength from outside companies like A.M. Best and Moody’s. Ratings of A or better indicate the carrier is prepared to pay claims.

 

How to Pick a Business Insurance Broker

Some people like to work with small business insurance brokers so they can evaluate rates from multiple carriers. If you choose to work with a broker, you want to look for one that either works with carriers you’ve already identified or that only workers with carriers that have an A-rating or better from rating agencies. You may also want to note if the broker provides information about additional fees.

Tips on Getting Business Insurance

Getting small business insurance is an important part of protecting your business and personal assets, but the process can be overwhelming for people who don’t work in insurance every day. These tips can help make it easier to apply for and find the appropriate business insurance for your individual circumstances.

Compile the Documents & Information Needed to Buy Business Insurance

Small business insurance carriers use details about your business to determine if they want to offer you coverage and how much they will charge for it. Providing them with accurate information helps you get accurate quotes, so it’s a good idea to gather documents before your apply. Moreover, inaccurate information may mean your insurer can deny claims should you ever file one.

Some of the information you may need when you apply for business insurance includes:

  • Business location, including address, age, materials, and square footage
  • Business name
  • Inception date
  • Business structure
  • Number of employees
  • Total payroll
  • Compensation for your owners and officers
  • Revenue for the past 12 months
  • Estimated revenue for next 12 months
  • Revenue earned from largest client
  • Details about business operations
  • Years of industry experience
  • Professional certificates
  • Business-owned vehicle information
  • Value of business-owned property
  • Claims history

Compare Multiple Offers Before Buying Business Insurance

Every insurer has its own formula for determining premiums. Some put more weight on your industry while others are more concerned with your claims history, revenue, or business size. As a result, it’s a good idea to compare costs and coverage details from more than one insurer. An easy way to do this is to work with an independent agent or broker who has access to and can submit your information to many carriers.

Work With an Experienced Business Insurance Agent

A number of insurance agents specialize in specific industries, which means they usually have a better understanding of what risks businesses in the industry face and can access specialized carriers. This makes it easier for agents to evaluate exposures and find appropriate coverage at an affordable price.

Bottom Line

No matter what type of business you own, your operations come with risk. One way many owners guard against that is by getting business insurance. The policies they buy protect their businesses from disaster by covering customer lawsuits, property damage, and other perils so that the ensuing costs don’t put them out of business.

2 Comments

  1. Eli Mcmullen

    Thank you for explaining that general liability insurance covers medical bills and repairs for damages done to non-employees. My uncle is interested in becoming an electrician and needs to ensure that his clients are protected if one of his employees makes a mistake while he is training them. Maybe he should find some business insurance so that everyone is safe.

    Reply
  2. Derek Swain

    I found it helpful that you brought up how the majority of small businesses will only need to pay $400-$600 annually for general liability insurance. My brother would like to open a roofing service and needs to find an affordable way to protect his business since he already spent most of his budget on equipment. Maybe he should consider getting general liability insurance to keep him protected for a reasonable price.

    Reply

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