Types of Business Insurance for Small Business Owners

General liability insurance

General liability covers claims that your business caused bodily injury or property damage to someone else, plus certain advertising claims and legal defense costs.

This is the base policy for most small businesses. If a customer slips in your shop, or your crew damages a client's floor, general liability can pay for medical bills, repairs and legal defense, up to the policy limits.

Landlords, clients and general contractors often require proof of coverage and a certificate of insurance before you can sign a lease or start a job. Check the required limits in each contract.

It does not cover your own property, your employees' injuries or mistakes in professional advice. Other policies handle those. Read exclusions carefully, because they decide what the policy really covers.

Commercial property and business interruption

Commercial property insurance pays to repair or replace your building contents, equipment and inventory after covered damage. Business interruption replaces lost income during the closure.

Fire, theft and certain storms can destroy years of investment. Property coverage handles the physical loss. Business interruption coverage, often added to the same policy, pays ongoing expenses and lost net income while you rebuild.

Points to check:

• Is coverage for replacement cost or actual cash value after depreciation?
• Are floods and earthquakes excluded? They usually require separate coverage.
• How long will the policy pay for interrupted income?
• Does it cover equipment breakdown? Learn more in equipment breakdown coverage.

If you rent, ask what your landlord's policy covers, and insure your own contents and improvements.

Workers' compensation

Workers' compensation pays medical costs and part of lost wages for employees hurt on the job. Most states require it once you have employees.

The rules vary by state. Thresholds for the number of employees, treatment of owners and rules for subcontractors all differ. Operating without required coverage can bring fines and personal liability if someone is injured.

Premiums are based on payroll, job classification codes and your claims history. Misclassifying employees to lower the premium can cause audit bills later. Safety programs, training and return-to-work plans can reduce claims and costs over time.

Independent contractors are generally not covered by your policy, but misclassifying employees as contractors can create exposure. Ask your agent and your state workers' compensation agency about your situation.

Professional liability, cyber and commercial auto

Professional liability covers errors in advice or services. Cyber covers data breaches and attacks. Commercial auto covers vehicles used for business.

• Professional liability (errors and omissions). For consultants, accountants, designers, agents and others who sell advice or expertise. General liability does not cover this kind of claim.
• Cyber liability. For businesses that store customer data, take payments online or rely on computer systems. It can cover notification costs, recovery and some legal expenses.
• Commercial auto. A personal auto policy may refuse claims during business use. Vehicles you own or lease for work usually need a commercial policy, and non-owned auto coverage may protect you when employees use their own cars.

Match coverage to risk. A graphic designer needs professional and cyber coverage more than commercial auto. A delivery service needs the opposite.

Other coverage to consider

Depending on your trade, you may need umbrella liability, product liability, liquor liability, a business owner's policy, key person coverage or surety bonds.

Additional options include:

• Business owner's policy (BOP). Bundles general liability, property and business interruption, often at a lower combined price for small, lower-risk businesses.
• Umbrella policy. Adds liability limits above your underlying policies.
• Product liability. For makers and sellers whose goods could cause harm.
• Liquor liability. For restaurants, bars and event businesses.
• Key person coverage. Pays the business if a critical owner or employee dies or becomes disabled. Lenders sometimes require it.
• Surety bonds and license bonds. Required for many contractors and some licensed trades.

A licensed independent agent can compare quotes across carriers and help you avoid gaps and duplicates.

How to choose coverage and budget for it

List your biggest risks, check what contracts and laws require, get several quotes and set limits you could not afford to pay yourself. Review every year.

A practical approach:

1. List what could go wrong and how much it would cost: injury, fire, lawsuit, data loss, lost income.
2. Check legal and contract requirements for each.
3. Collect quotes from at least three sources, with the same limits so they compare fairly.
4. Raise deductibles carefully. A higher deductible cuts the premium but increases what you pay when something happens.
5. Review annually, and again when you add staff, vehicles, locations or services.

Premiums are a real operating cost and show up in your cash flow. Many owners pay annually and strain cash, so ask about monthly payment plans. Insurance is also often a condition of financing, including equipment and SBA loans, as explained in SBA hazard insurance requirements. If a large premium or an uninsured loss creates a gap, working capital or a line of credit can help. ROI Funder considers 6+ months in business, $20,000+ monthly revenue and 500+ FICO.