Business Insurance Guide

Who needs business insurance?

Every business needs some form of business insurance to protect against the costs associated with claims and lawsuits, as well as damages to people and property. Customers, employees and other businesses could sue your company for a variety of reasons, even if you did nothing wrong.

For example, someone could get injured by falling in front of your retail store or misusing a product you sell, which could result in a costly lawsuit. Business insurance would cover the cost of the lawsuit, whether you win or lose, as well as the cost of going to court.

Legally required insurance

Some industries and professions require business owners and professionals to have specific types of business insurance. For example, medical professionals must have medical malpractice insurance, financial and investment professionals must carry professional liability insurance, and a contract with a client might require your business to maintain errors and omissions insurance. Depending on your state and industry, your business might be required to have workers’ compensation insurance as well.

What types of business insurance do you need?

The type of insurance you need depends on various aspects of your business. These are the most commonly required types of business insurance:

• General liability insurance
• Commercial property insurance
• Commercial automobile insurance
• Business owners’ insurance
• Business income insurance
• Professional liability insurance
• Errors and omissions insurance
• Product liability insurance
• Workers’ compensation insurance
• Cybersecurity insurance

General liability insurance

General liability insurance provides your business with protection against lawsuits and claims of property damage and bodily injury. This type of insurance pays the legal costs involved in defending your business against the lawsuit, judgments and settlements from a lawsuit, repair costs if your employee damages a client’s home or place of business while doing work there, and a customer’s medical expenses if they get injured at your place of business.

Commercial property insurance

Commercial property insurance provides your business’s physical location and other property (e.g., tools, equipment, furniture, inventory) with protection against the costs incurred from events that can damage your business. Depending on the policy, covered events may include fires, explosions, natural disasters, terrorism and vandalism.

Commercial automobile insurance

Commercial automobile insurance provides your business with coverage against automobile accidents if you or your employees are at fault, such as when an employee gets into an accident while making a delivery in a company van. This type of insurance is ideal if you employ people who drive company-owned, leased, or rented vehicles or your business owns, leases, or rents vehicles. It also provides protection for employees who use their own vehicles to do their job.

Business owners’ insurance

Business owners’ insurance combines general liability insurance and commercial property insurance in one policy. It provides the coverage of both types of insurance, and the premiums typically cost less than the individual insurance policies would cost if purchased separately.

Business income insurance

Business income insurance replaces income that’s lost when your business has to cease operations. The insurance covers instances of fire, weather-related damage, theft, explosion or other events described in the policy.

Professional liability insurance

Professional liability insurance provides your business with coverage against a client’s legal claim for negligence, malpractice and misrepresentation. The insurance coverage pays your legal fees, judgments against you, settlements, compensatory damages, punitive damages, and economic or business damages that result from the lawsuit.

Errors and omissions insurance

Errors and omissions insurance provides your business, employees and business professionals with coverage against lawsuits for a client’s claim of inadequate work or negligent action resulting from your professional services. The insurance policy pays your legal fees, court costs and any settlements up to the amount specified in your coverage.

Product liability insurance

Product liability insurance provides your business with coverage against expenses that arise if a person claims that a product your business sold, made or distributed causes bodily injury, unlawful death or property damage. The insurance pays your legal fees, judgments against you, settlements, compensatory damages, punitive damages, and economic or business damages that result from the lawsuit. It also covers the injured party’s medical costs that arise from use of the product.

Workers’ compensation insurance

Workers’ compensation is an insurance program that provides benefits to employees who become injured or ill while doing their job. The insurance covers the employee’s medical costs and lost wages while they were out of work, as well as their rehabilitation costs so they can return to work or find a new job. Workers’ compensation insurance also limits your company’s liability for legal claims when an employee sues your business for an illness or injury caused by work-related incidents. [Read more about how to process workers’ compensation claims.]

Cybersecurity insurance

Cybersecurity (or cyber-liability) insurance provides your business with coverage against the legal costs and damages related to cybercrime and cybersecurity issues. The insurance covers incident response costs; legal, forensic and breach management expenses; system damage and restoration costs; and system business interruption costs.

How much does business insurance cost?

The costs of different types of business insurance depend on the type of insurance you need and the following factors:

• Type of business: Some types of businesses (e.g., law firms, medical offices) face higher standards and thus incur more lawsuits than other industries, which means they pay higher insurance premiums.
• Business size and number of employees and clients: Businesses with more employees and clients typically require more insurance coverage than single-person businesses.
• Coverage limits: Higher coverage limits expose the insurance company to more expensive lawsuits, so the costs of the insurance premiums will also increase.
• Location: Insurance providers price insurance according to state insurance regulations and typical loss exposures in those states.
• Experience and number of years in business: More-experienced professionals may pay less for insurance than a relative newcomer because they will have built up trust with their insurance provider and clients.
• Claim history: If a business or product has a history of claims, it will lead to a higher risk of potential lawsuits for the insurance provider, which will increase insurance costs.

How do you get business insurance?

Getting business insurance involves contacting an insurance broker or insurance provider to purchase the specific type of insurance required for your business. Before you choose a business insurance provider, you must determine what type (or types) of insurance you need. Consider the following advice when getting business insurance:

• Evaluate your risks. Create a list of possible losses or liabilities you could face in your business (e.g., personal and business property, vehicles, equipment, supplies, personnel, data). Consider the types of lawsuits, situations, accidents or natural disasters that could affect your business.
• Find a reputable insurance broker. Work with an independent commercial insurance broker who can help find the right insurance policy for your business needs.
• Compare prices. Compare rates, terms and benefits for insurance policies from different insurance brokers and companies.
• Assess your needs annually. Your risks and liabilities will change and grow with your business. If you have purchased new equipment, moved into a new market, opened a new location or changed your operations, contact your insurance broker to discuss how your business has changed and how it will affect your insurance needs.

How can you save on business insurance?

The costs of business insurance can add up, especially if you need more than one type of coverage. Follow these tips to save on business insurance and reduce your premiums:

Work with your insurance broker.

Your insurance broker is knowledgeable about the different types of insurance required and available for your business. They can provide advice on what insurance you need to protect against unexpected disasters or legal claims, as well as what insurance you can avoid to save money. They can also advise you on what you need to do to lower your risks, such as investing in disaster planning, which can lower your premiums. Keeping your broker informed of major purchases or changes in your business can also affect your policy rates.

Shop around.

Every company has different rates for different policies; compare insurance providers’ offerings to find the best rates for your business. Contact insurance companies and brokers with experience in your business type or industry. Compare quotes based on the insurance coverage and services they provide. Check the financial health of different insurance companies, and see how they rate on consumer websites.

Purchase a package.

Packaged insurance policies (such as business owners’ insurance) can be less expensive than individual insurance policies. These types of policies include standard coverages and liability limits that would work for your type of business.

Increase your deductible.

The deductible is how much you pay before the insurance policy starts covering the costs. When you set a higher deductible, you typically pay lower insurance premiums.

Take action to prevent losses.

Your insurance broker or insurance provider can provide advice and information on ways to reduce your insurance premiums. For example, updating your alarm system or fire prevention system might lower your premiums. Other strategies include investing in workplace health and safety measures, creating a disaster preparation plan and engaging in human resource intervention.

Do you need business insurance for an LLC?

Registering as a limited liability company (LLC) should protect your personal assets against a lawsuit or claim. However, it will not protect your business assets if you are sued. Also, your personal assets could be at risk if they are not completely separate from your business. Business liability insurance would protect your business’s assets against a lawsuit.