Does your small business need liability insurance? Probably. Here’s why, how much it costs, and how to choose an insurance policy.

Here's what you need to know:
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Choosing the right policy for your business depends on a number of factors, including industry, location, the likelihood of certain risks, and more
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It's important to review your insurance options with a trusted broker and your business CPA and legal team
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There are many different types of liability coverage for small business owners
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Review your insurance needs annually and adjust your coverage accordingly
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There are proactive steps you can take to help ensure your company runs smoothly
With tight cash flow and an uncertain market, small businesses can be financially ruined by a disastrous, unexpected lawsuit or accident. And it’s more common than you think. In fact, 43% of business owners are threatened with or have been involved in a lawsuit, and litigation can easily cost up to $150,000.
While businesses can do their best to avoid accidents, conflicts, and claims, life happens. And insurance is meant to cover you — but what policy do business owners actually need?
We can’t say what will work for your specific business, but we can lay out what to consider when choosing a policy, key insurance types in simple terms, and how to select a sound insurance policy.
What insurance does a small business need?
For that reason, many business owners look to insurance coverage in case they ever need to fund expensive defense costs. But choosing the right policy for your business depends on a number of factors, including:
- Industry
- Location
- Business size
- Assets
- Types of risk exposure
- Likelihood of certain risks
- Prior claims
For example, an independent retail boutique may only have broad liability insurance, such as a Business Owner’s Policy. But a large IT firm that handles sensitive data will likely need cyber insurance, worker’s compensation, and professional liability insurance, among other options.
It’s important to review your insurance options with a trusted broker and your business CPA and legal team.
But there are also many state regulations. For example, most states currently require businesses to purchase Worker’s Compensation Insurance.
It’s important to review your insurance options with a trusted broker and your business CPA and legal team.
15 different types of small business insurance
There are a number of different types of liability coverage for small business owners. Some of the more popular forms include:
1. General Liability Insurance
This is the most common form of small business insurance. General liability insurance coverage provides support in case a customer or another party not related to the business experiences bodily industry or property damage from interacting with your business or product.
Not every general liability policy includes protection against product liability damage, so be sure to check the fine print.
2. Professional Liability Insurance
This form of coverage is meant to cover the costs of service-related claims.
3. Business Owner’s Policy (BOP)
If you work with products, provide services, and have a brick-and-mortar location, you might want to invest in a BOP. A Business Owner’s Policy usually combines general liability, professional liability, and business interruption insurance.
4. Business Interruption Insurance
Sometimes called “business income insurance,” this form of liability coverage helps to recover lost income in case of operational failure due to property damage.
5. Worker’s Compensation
If an employee gets a work-related injury or illness, worker’s compensation can help pay for treatment costs. Many states require employers to invest in worker’s compensation.
6. Cyber Liability Insurance
Data breaches are incredibly expensive and increasingly common, even for small businesses. Cyber liability insurance coverage mitigates costs when notifying impacted customers, paying legal fees, replacing damaged computer systems, and other related expenses.
7. Commercial Auto Insurance
If you or your employee gets in an accident, commercial auto insurance handles the cost of bodily or property damage claims.
8. Umbrella Insurance
Umbrella business insurance has two functions. First, it overs broad coverage, which can help plug gaps left by other, more specific policies. Second, it can be used to address claims if your primary policy is exhausted.
9. Employment Practices Liability Insurance
To be protected against a claim of discrimination or wrongful termination, employee liability insurance is the go-to insurance policy.
10. Commercial Property Insurance
This policy protects owned and rented business property. This can be a building or a critical piece of equipment.
11. D&O Insurance
If your organization is large enough to have a Board of Directors and C-Suite management team, you’ll likely need Directors and Officers (D&O) insurance.
12. Fiduciary Insurance
Independent financial advisory firms or medical clinics may benefit from fiduciary insurance that protects against administrative claims, such as potential ERISA or HIPAA violations.
13. Excess Insurance
Excess insurance isn’t a separate insurance policy itself. Instead, it is a layer of insurance on top of your primary policy. Excess liability insurance is only used to provide extra protection once the primary insurance policy is exhausted.
14. Errors and Omissions Insurance
Often abbreviated to E&O insurance, this form of coverage guards against claims of negligence.
15. Group Health Insurance
Health insurance is essential to any competitive benefits package, but specific policies vary widely. It’s important to do research into what your employees need when choosing group healthcare plans.
Steps to take when selecting business insurance
Business insurance is all about peace of mind. You may never be involved in a single claim, but a lack of liability coverage can destroy your business if a lawsuit does turn up.
To make the decision process easier, here are some steps you can take when searching for an insurance company:
- Know your business. While you can’t predict the future, it’s possible to estimate what insurance policy may be useful based on your business. Keep a list of your potential risks and review what general insurance plans they may come under.
- Review insurance company quotes and reviews. While an insurance quote is important, you should also be able to trust your insurance company. Make sure to see what current customers are saying. You’ll also want to focus on insurance companies that know your niche. They are likely to be able to underwrite a policy specific to your industry.
- Work with a legal team or agent. Insurance is difficult, even for underwriters. There’s a lot of legalese, and at the end of the day, you should be focusing on your business. If you don’t have a legal team, work with an insurance agent who knows your industry to ensure you’re getting the best coverage for dollar value.
- Review your needs annually and adjust. Insurance is often renewed annually, and coverage changes year-to-year depending on the market and insurance company benchmarks. And it’s likely your business needs might have changed, too. Make sure to have a point person, even if it’s not you, review the policy before hitting autorenewal.
How much does business insurance cost?
It’s impossible to determine an accurate quote without knowing your business specifics. However, for small businesses, many common policies like general liability or Worker’s Compensation can run an average of around $60-$120 per month.
More specific coverage plans, like D&O insurance, can easily be $1 million annually.
It’s fair to say that the larger your business is, and the riskier, the more coverage will probably cost.
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Be proactive in creating a better workplace
Investing in commercial insurance is 1 way that business owners can have the freedom to focus on their day-to-day operations. But what if you want more than coverage — what if you want to make your workplace the best and most secure it can be?
Creating a safe, secure, and productive work environment starts with HR and management. From onboarding to performance reviews and handling conflicts, there are many strategies that can help make employees feel valued.
To help your business run smoothly, here are some of our top resources for small business owners: