Getting Business Insurance: What to Buy, What It Costs, How to Shop

The coverages most small businesses need

The core set is general liability, property insurance, workers' compensation and, where relevant, commercial auto, professional liability and cyber coverage.

• General liability. Covers customer injury and property damage claims, plus related legal costs.
• Commercial property. Covers your building contents, equipment and inventory from fire, theft and certain other events.
• Workers' compensation. Covers employee injuries and illness from work. Required in nearly every state once you have employees.
• Commercial auto. Covers vehicles used for the business. Personal auto policies often exclude business use.
• Professional liability. Covers claims of mistakes or bad advice in service businesses.
• Cyber liability. Covers data breaches and related costs. See cybersecurity for small business.

Our overview of types of business insurance adds more detail.

Business owner's policy: a common bundle

A business owner's policy bundles general liability and property coverage, often at a lower price than buying them separately.

Many insurers offer a BOP for small, lower-risk businesses such as offices, shops and small restaurants. It often adds business interruption coverage, which replaces lost income while you are closed after a covered loss.

BOPs have size and industry limits. Higher-risk operations, such as construction, may need separate policies. Equipment breakdown cover is often an add-on; see equipment breakdown coverage.

What drives the price

Price depends on industry risk, payroll, revenue, location, coverage limits, deductible, claims history and the number of employees.

Insurers price what they expect to pay out. Factors include:

• Industry and tasks. A roofer pays far more than a bookkeeper.
• Payroll and headcount. Workers' compensation is priced on payroll by job class.
• Limits and deductibles. Higher limits cost more. Higher deductibles lower the premium.
• Claims history and safety practices. A clean record and documented training help.
• Location. Weather risk, crime and local legal environment matter.

Prices vary widely, so get several written quotes rather than relying on a general estimate. Training and safety programs can influence your rate; see employee training.

How to shop and compare quotes

Describe the business the same way to every provider, ask for the same limits and deductibles, and compare exclusions as well as price.

A step-by-step approach:

1. List your operations, revenue, payroll, locations, vehicles and equipment values.
2. Ask an independent agent to quote several carriers, and also check direct insurers.
3. Request the same limits and deductibles in each quote.
4. Read exclusions and endorsements. A cheap policy that excludes your main risk is not cheap.
5. Check the insurer's financial strength rating and claims reputation.

Be honest on applications. Misstating revenue, payroll or operations can lead to denied claims or canceled coverage.

Contracts, landlords and lenders may require it

Leases, client contracts and many loans require minimum coverage and certificates of insurance. Check requirements before you sign.

Commercial landlords usually require general liability with specific limits and may ask to be named as an additional insured. General contractors often require subcontractors to carry liability and workers' compensation. Some financing, such as equipment financing or SBA loans, requires property or hazard coverage on collateral. For SBA rules see SBA hazard insurance requirements.

Ask your agent for a certificate of insurance when a contract requires one. Keep copies of every policy and certificate in one place.

Filing a claim without making it worse

Report promptly, document everything, protect the property from further damage and keep receipts. Do not admit fault or promise payment.

When something happens:

1. Make the scene safe and get medical help for injuries.
2. Take photos and video, and gather names and contact details of witnesses.
3. Notify your insurer or agent as soon as possible, since policies set reporting deadlines.
4. Take reasonable steps to prevent further loss and keep receipts.
5. Keep a log of calls and emails with the adjuster.

Review the policy for deductibles and waiting periods on business interruption. Knowing these before a claim avoids unpleasant surprises.

Budgeting premiums and covering big deductibles

Premiums and deductibles are real cash costs. Plan for them in your budget and keep reserves for the deductible you chose.

Some insurers want a large part of an annual premium upfront, or require a deposit for workers' compensation. Financing the premium by monthly payment is available but may add fees. A higher deductible lowers your premium, but you need the cash to pay it if a claim hits.

If a covered loss leaves a gap before the insurance pays, such as a flood that shuts the shop for weeks, a business line of credit can cover payroll and rent in the meantime. ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Also build a buffer; see the small business slush fund.

Review coverage every year and whenever the business changes: a new location, vehicle, service line or hire. Policies are based on what you told the insurer, so growth without an update can leave gaps. Ask your agent for an annual coverage review before renewal.