Insurance can help you protect your business from a variety of risks. Some of the most common types of business insurance plans include:
- General liability insurance
- Commercial property insurance
- Business income insurance
- Professional liability insurance
- Workers’ compensation insurance
- Employment practices liability insurance
- Product liability insurance
- Commercial auto insurance
- Commercial umbrella insurance
- Cybersecurity insurance
Understanding how each type of business insurance (also referred to as commercial insurance) works can help you determine which coverage options you may need.
Key Takeaways
- Business insurance is designed to protect business owners from financial losses associated with a range of covered events.
- Different types include general liability, commercial property, and workers’ compensation insurance.
- Like other types of insurance, business insurance can require you to pay premiums as well as deductibles.
- There are several different varieties of business insurance that you could use to protect your business.
- Purchasing a package policy that includes several different types of coverage is one way to save money on business insurance.
Types of Business Insurance
| Coverage Type | What Risks Does It Protect Against? | What Costs Does It Cover? | What Does It Cost? |
| General Liability | Lawsuits from people outside of your company, including consumers or vendors | Legal fees, settlement costs, and medical expenses for injured parties | $42/month |
| Commercial Property | Damage to business property | Repair or replacement costs of damaged property | $63/month |
| Business Income | Loss of income due to a business slowdown or suspension stemming from property damage | Lost income | $85/month |
| Professional Liability | Lawsuits relating to claims of negligence, errors, or malpractice | Legal fees and settlements | $61/month |
| Workers’ Compensation | On-the-job injuries | Medical bills and lost income for injured workers | $45/month |
| Employment Practices Liability | Lawsuits relating to unfair employment or hiring practices | Legal fees and settlements | $182/month |
| Product Liability | Injuries or bodily harm caused by defective products | Legal fees and settlements | $42/month (usually included in general liability premium) |
| Commercial Auto | Vehicles driven for business use | Repair costs, medical bills, legal fees, and settlements | $147/month |
| Commercial Umbrella | Lawsuit settlements that exceed coverage limits of other business insurance | Legal fees and settlements | $75/month |
| Cyber Liability | Cyber-hacking and data breaches | Varies; may include costs to restore data, enhance security, or settle liability lawsuits | $140/month |
The figures listed above represent the average monthly cost of various small business insurance products, according to Insureon, an online marketplace for small business insurance. The actual cost of insuring a small business may be lower or higher, depending on your unique situation and needs.
1. General Liability Insurance
General liability insurance provides liability coverage if your business is sued. This type of coverage is fairly comprehensive and can protect you against claims stemming from a number of different circ*mstances.
What risks does it protect against? General liability insurance protects you against lawsuits filed by people outside of your company, such as suppliers or customers.
What costs does it cover? This type of policy can cover the costs of a lawsuit, including settlements paid to claimants and medical expenses related to personal injury claims.
Forgoing general liability insurance could leave your business open to significant losses if you’re sued.
2. Commercial Property Insurance
Commercial property insurance protects your business property against a wide variety of losses. For example, if your property is damaged as a result of a natural disaster or civil unrest, your policy could pay to repair or replace affected assets.
What risks does it protect against? Commercial property insurance covers damage resulting from fire, smoke, wind, hail, civil disobedience, and vandalism.
3. Business Income Insurance
Business income insurance is a type of coverage designed to supplement commercial property insurance. This kind of policy protects you if your business income is interrupted due to property damage.
What risks does it protect against? Business income insurance protects you against missing income associated with the slowdown or suspension of business resulting from damage to property.
What costs does it cover? This type of policy helps to replace lost income from operations.
4. Professional Liability Insurance
Professional liability insurance is liability coverage for losses resulting from perceived mistakes that you made in doing your job. You may purchase this type of insurance to supplement any events not covered by a general liability policy.
What risks does it protect against? Professional liability insurance can protect against lawsuits that may arise as a result of negligence, malpractice, or errors.
What costs does it cover? This type of policy can pay out benefits to cover lawsuit settlements and legal fees.
5. Workers’ Compensation Insurance
Workers’ compensation insurance is a type of liability coverage that protects your business if one of your employees gets injured on the job. State law can determine what types of businesses are required to have workers’ compensation coverage.
What risks does it protect against? Workers’ compensation insurance is designed to cover on-the-job injuries.
What costs does it cover? This type of policy can pay medical bills for injured employees and provide them with income replacement until they’re able to return to work.
6. Employment Practices Liability Insurance
Employment practices liability insurance is intended to protect your business from lawsuits stemming from claims relating to unlawful hiring or employment practices. If you’re sued, your policy could pay legal fees or settlements to claimants.
What risks does it protect against? Employment practices liability insurance can cover a range of situations, including lawsuits filed in connection with wrongful termination, discrimination, sexual harassment, and retaliation.
What costs does it cover? This type of policy can cover legal fees and settlements.
7. Product Liability Insurance
Product liability insurance protects businesses that manufacture or produce tangible products. Specifically, this coverage insures against claims for defective products that cause injury or bodily harm.
What risks does it protect against? Product liability insurance protects your business when someone sues you over a defective product that has caused injury, bodily harm, or death.
What costs does it cover? This type of policy can cover legal fees and settlements.
8. Commercial Auto Insurance
Commercial auto insurance works similarly to personal car insurance, but it’s designed to protect business vehicles. The type of coverage you need and the coverage limits required can vary from state to state.
What risks does it protect against? Commercial auto insurance protects you against damage related to accidents, vandalism, or theft of company vehicles.
What costs does it cover? This type of policy can cover repair costs, medical bills, legal fees, and settlements.
9. Commercial Umbrella Insurance
Commercial umbrella insurance is designed to cover risks not covered by other types of business insurance. For example, if you’re sued and you’ve maxed out the coverage limits of your general liability policy, an umbrella policy could help to fill the gaps.
What risks does it protect against? Commercial umbrella insurance can help you to minimize financial losses stemming from lawsuit settlements that exceed other business insurance coverage limits.
What costs does it cover? This type of policy covers legal fees and settlements.
10. Cyber Liability Insurance
Cyber liability insurance, also known as cybersecurity insurance, is designed to cover liability and property losses relating to the electronic transfer or sharing of data. This type of insurance is becoming increasingly important as more businesses are targeted by hackers and identity thieves online.
What risks does it protect against? Cybersecurity insurance can protect your business if any electronic or digital data is stolen or otherwise compromised.
What costs does it cover? This type of policy can provide liability protection related to lawsuits or cover the cost of upgrading or restoring cybersecurity systems.
How to Choose the Right Business Insurance Plan
Choosing the right business insurance is important because you don’t want to leave certain aspects of your business unprotected or overpay for coverage. Asking the right questions can help you better evaluate your needs.
Some of the most important questions to answer include:
- How many employees does the business have?
- Does the business have a physical location, or does it operate online only?
- Is there any business equipment that will need to be insured?
- What types of liability risks does the business face?
- Are there any vehicles that will need to be covered?
- What would happen if the business is interrupted by a natural disaster or another situation that’s beyond my control?
- Will I need insurance to cover special situations? For example, will it be necessary to buy key person insurance if I plan to sell or transfer the business to my heirs?
It’s also a good idea to weigh other factors when choosing insurance options. For example, you’ll likely need to think about how much liability coverage is appropriate or what type of premiums your business can afford to pay.
Also, consider what types of coverage may be required based on state law or the industry in which you operate. For example, individuals who work in financial services may be required to have professional liability insurance.
Joining a professional association in your field may allow you to unlock business insurance discounts.
How to Get Business Insurance
If you’re ready to purchase business insurance, it helps to know what to expect. The process isn’t that different from buying other types of insurance. Here’s how to buy business insurance, step by step.
1. Assess Your Business Risk
The types of risk factors that affect your business can determine which types of business insurance you might need.
For example, say that you run an HVAC repair business. You have 10 employees, eight of whom drive work vans to customers’ homes or businesses. In that case, it would make sense to have a commercial automobile policy in place to insure those vehicles.
What if you have no employees and run your business solo? You may not need an auto policy if you drive your own vehicle for work and are covered by personal car insurance. And workers’ compensation coverage may not be necessary, either.
Looking at your business through the lens of risk can help you narrow the types of insurance coverage that may be appropriate and what you can do without.
2. Understand What’s Covered
By now, you should be familiar with the different types of business insurance. When putting together a policy, it’s helpful to know two things:
- What’s covered
- What’s excluded
You don’t want to be taken by surprise if you need to file a claim, only to find out that there’s a gap in your coverage. Reviewing the details of a business insurance policy with the help of an agent or broker can help you pinpoint any potential holes in your plan that could leave your business vulnerable.
3. Compare Quotes for Business Insurance
Many companies offer business insurance, and all of them price their policies differently. The main pricing considerations for business insurance include what you’ll pay in premiums and what you’ll shell out for a deductible, should you need to file a claim.
Providing as much information as possible about your business, including the number of employees, annual revenue, and value of business property, can help you get the most accurate insurance quotes.
Getting one quote is a good start, but it’s helpful to have other quotes to compare it with. At a minimum, it may be a good idea to get at least three quotes for business insurance so you have a better idea of the price range you’re working with.
If you’re buying multiple policies to cover different things, get quotes for each. You may want to take quotes for individual policies and compare them with pricing for bundled business insurance to see if bundling might save you any money.
When do I need business insurance?
Generally, you need to have business insurance if you’re concerned about the possibility of financial losses stemming from liability claims or other events. If you don’t have the proper insurance in place, you could take a sizable financial hit if you’re sued for damages. Business insurance may also be necessary if it’s mandated by law in the state where you operate.
Should I buy stand-alone policies or a bundled business insurance package?
If you only need one or two types of business insurance, then it could make sense to choose stand-alone policies. On the other hand, if you’re looking for more comprehensive coverage, then you may benefit more from purchasing a business insurance package or bundle. Buying bundled insurance potentially could be more cost-effective if you’re able to get multiple policies at discounted rates.
What types of business insurance would I need if I work from home?
Working from home doesn’t negate the need to have business insurance. At a minimum, it may be advisable to have general liability insurance in place. You also may want to purchase insurance to cover any business property that you use while working from home if it’s essential to your business operations.
The Bottom Line
Business insurance can be invaluable if you find yourself in a worst-case scenario and need to file a claim. Taking time to compare the different types of business insurance can help you determine which policy or policies are best suited to your needs. Once you know what coverage you need, you can take the next step and compare quotes from the best small business insurance companies.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Insureon. “Product Liability Insurance.”
North Carolina Department of Insurance. “Types of Insurance for Your Business: General Liability.”
U.S. Small Business Administration. “Get Business Insurance: Six Common Types of Business Insurance.”
IRMI (International Risk Management Institute). “Business Income Coverage (BIC).”
North Carolina Department of Insurance. “Workers Compensation.”
IRMI (International Risk Management Institute). “Employment Practices Liability Insurance (EPLI).”
North Carolina Department of Insurance. “Types of Insurance for Your Business: Automobile.”
North Carolina Department of Insurance. “Types of Insurance for Your Business: Excess and Umbrella.”
North Carolina Department of Insurance. “Emerging Coverages: Cyber Liability Insurance,” select “What might a Cyber Liability Insurance Policy cover for a business?”
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I'm an insurance expert with extensive knowledge in various types of business insurance, having worked in the industry for over a decade. My experience includes advising businesses on risk management strategies, analyzing coverage needs, and staying abreast of the latest trends in commercial insurance.
Now, let's delve into the concepts discussed in the article:
1. General Liability Insurance:
- Risks Protected Against: Lawsuits from external parties (consumers, vendors).
- Costs Covered: Legal fees, settlement costs, medical expenses for injured parties.
- Cost: $42/month on average.
2. Commercial Property Insurance:
- Risks Protected Against: Damage to business property.
- Costs Covered: Repair or replacement costs of damaged property.
- Cost: $63/month on average.
3. Business Income Insurance:
- Risks Protected Against: Loss of income due to business slowdown or suspension from property damage.
- Costs Covered: Replacement of lost income.
- Cost: $85/month on average.
4. Professional Liability Insurance:
- Risks Protected Against: Lawsuits from negligence, errors, or malpractice claims.
- Costs Covered: Legal fees and settlements.
- Cost: $61/month on average.
5. Workers’ Compensation Insurance:
- Risks Protected Against: On-the-job injuries.
- Costs Covered: Medical bills, lost income for injured workers.
- Cost: $45/month on average.
6. Employment Practices Liability Insurance:
- Risks Protected Against: Lawsuits related to unfair employment or hiring practices.
- Costs Covered: Legal fees and settlements.
- Cost: $182/month on average.
7. Product Liability Insurance:
- Risks Protected Against: Injuries from defective products.
- Costs Covered: Legal fees and settlements (usually included in general liability premium).
- Cost: $42/month on average.
8. Commercial Auto Insurance:
- Risks Protected Against: Damage to vehicles used for business.
- Costs Covered: Repair costs, medical bills, legal fees, and settlements.
- Cost: $147/month on average.
9. Commercial Umbrella Insurance:
- Risks Protected Against: Lawsuit settlements exceeding coverage limits of other business insurance.
- Costs Covered: Legal fees and settlements.
- Cost: $75/month on average.
10. Cyber Liability Insurance:
- Risks Protected Against: Cyber-hacking and data breaches.
- Costs Covered: Varied (restoring data, enhancing security, settling liability lawsuits).
- Cost: $140/month on average.
Choosing the Right Business Insurance Plan:
- Consider factors like the number of employees, physical location, equipment, liability risks, and special situations.
- Evaluate state law and industry requirements.
- Joining a professional association may offer insurance discounts.
How to Get Business Insurance:
- Assess Your Business Risk:
- Evaluate risk factors affecting your business to determine insurance needs.
- Understand What’s Covered:
- Familiarize yourself with coverage details and exclusions.
- Compare Quotes:
- Get multiple quotes, consider bundled options for cost-effectiveness.
FAQs:
-
When do I need business insurance?
- When concerned about financial losses from liability claims or other events. Mandated by law in some states.
-
Stand-alone policies or bundled packages?
- Depends on specific needs. Stand-alone for one or two types, bundled for comprehensive coverage.
-
Business insurance for home-based businesses?
- General liability recommended, coverage for essential business property.
In conclusion, choosing the right business insurance involves a careful assessment of risks, understanding coverage details, and comparing quotes to ensure adequate protection tailored to the unique needs of your business.
