Business insurance, sometimes referred to as commercial insurance, protects businesses from losses due to unexpected events during normal operations, such as lawsuits, natural disasters, or accidents. There are various types of business insurance, including coverage for property damage, legal liability, and employee-related risks, among others.
Companies evaluate their business insurance needs based on potential risks, which can vary depending on the type of business and its environment. Understanding the types of business insurance available and what they provide is essential for any business owner.
Small business owners must carefully assess their risks because they may face personal financial exposure in the event of a loss. Business insurance protects owners from potential losses due to unexpected events that they might not afford to cover on their own. This protection allows businesses to operate when it might otherwise be too risky.
Working with a reputable and licensed insurance broker is advisable if you need business insurance. You can obtain a list of licensed agents in your state through your state's department of insurance or the National Association of Insurance Commissioners.
Note: Business insurance policies differ from personal lines insurance because they protect a business, not an individual.
Federal regulations require certain types of insurance, such as workers' compensation. Additionally, certain states may mandate additional coverage types for specific businesses. In most situations, it’s advisable for businesses to protect themselves by having coverages that aren’t legally required. Here are seven common types of business insurance:
General liability insurance is essential for all businesses. It's considered comprehensive, though it doesn’t protect against all risks. General liability provides coverage for bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.
Unlike general liability insurance, which is for any business, professional liability insurance (PLI) is designed for businesses that provide services. Coverage is for losses caused by the service provided. It protects against expenses related to malpractice, negligence, or errors.
Property insurance is crucial for businesses with significant physical property, such as equipment, signage, inventory, and furniture. It protects the business from losses in events such as fire, storm, or theft. For example, property insurance can cover damage to inventory, computers, furniture, or signage.
Property insurance typically doesn’t cover events like floods and earthquakes. If your area is at risk for these events, you'll need a separate policy.
If you're operating a home-based business, you may need additional coverage for equipment and inventory. Standard homeowner’s policies don’t typically cover home-based businesses like property insurance covers traditional businesses. You can add home-based business insurance to a homeowner's policy as a rider for minimal equipment and liability coverage.
Note: A business owner's policy (BOP) is an insurance package often ideal for small and home-based businesses. It bundles typical insurance options, allowing you to purchase coverage efficiently and save money.
Product liability insurance is designed for businesses involved with products, such as manufacturers, wholesale distributors, and retailers. It protects a business from costs associated with damages caused by products, such as a defective product causing bodily injury or harm. Without product liability insurance, a business can be vulnerable to expensive lawsuits.
Any vehicles used for business should be insured. Whether you have vans, buses, tractor-trailers, or passenger cars, insurance is necessary in case of damage to the vehicles or cargo or injuries to others. Each state has a minimum amount of required insurance, and several factors, such as the driver’s record and vehicle condition, can affect the price.
Business interruption (or continuation) policies are particularly relevant to companies with physical locations, such as retail stores or manufacturing facilities.
This insurance compensates a business for lost income due to events that disrupt normal operations. It’s typically added as a rider to a property insurance policy or as part of a business owner’s policy. Policies may also include a civil authority provision detailing compensation if government action closes the business.
The cost of a business insurance policy depends on several factors, including your business type, location, and coverage needs. Progressive reports that the median monthly cost of a business owner's policy is $70. The Hartford shares that the median monthly cost of its business policies is $55.
Several factors can influence the cost of a business insurance policy, including the number of employees, business location, and the amount of coverage required. Generally, the more employees and coverage needed, the more expensive the policy will be. Prices also vary from region to region depending on associated risks.
You can obtain business insurance through an insurance agency that offers the type of policy you need. Working with an insurance agent at a company can help you get a quote and guide you through your options and the application process. You can often get a policy online or by calling the agency.
Business insurance can be a valuable tool to protect your business against potential losses related to unexpected events. When shopping for business insurance, explore several policy options and ensure you fully understand each one's terms. Consider consulting an insurance professional that can help find the right coverage to ensure you can operate safely and sustainably.