Starting your own small business can be immensely rewarding. But for all the wonderful upsides—independence, growth, and autonomy, as well as the opportunity to monetize your skills and interests—there are inherent risks too.
It pays to ask: what types of insurance does a small business need? Protecting yourself before an incident occurs can make the difference between recovering gracefully from unexpected challenges and having to close the book on your entrepreneurial dreams.
Read on to learn more about ten kinds of insurance your small business may need.
1. General liability insurance
As the name suggests, general liability insurance protects policyholders against a broad range of risks like accidental bodily injury, property damage, and advertising injury to a third party. It’s an essential coverage to have because every small business — no matter how carefully it operates — is vulnerable to the possibility of a lawsuit stemming from these types of injuries.
Let’s take a closer look at the types of injury covered under a general liability insurance policy.
Bodily Injury and Medical Bills
Your company may be held liable for any injuries non-employees sustain on your property. You may also face liability for bodily injury you cause others on a client’s property or in a public place. For example, it may be common for you to leave tools lying around during the course of your work. If someone gets injured as a result, you could be held liable, whether their injury occurred at your property or somewhere else.
The total cost for bodily injury can include medical and legal expenses. Without insurance, small businesses may find themselves on the hook for thousands of dollars following a single mishap. Having a general liability insurance policy in place can also help avoid time-consuming, costly trials by covering medical payments (which can reduce the likelihood of litigation).
Property damage
In addition to bodily injury, general liability insurance covers property damage to third parties, making it especially important for small business owners who visit clients’ homes or commercial spaces. It is important to note that this coverage does not include damage to your own property (you need property insurance for that, as explained below).
Here’s an example of how General Liability coverage can protect your business: During the course of your work, you or one of your employees accidentally damages or breaks something, and your client expects you to fix it. General liability coverage can help cover the costs of repair or replacement.
Personal and advertising injury
The third type of coverage that falls under general liability is advertising and personal injury. Examples include:
- Libel and slander
- Malicious prosecution
- Wrongful eviction
- Violation of privacy
- Copyright infringement
If you wrongly accuse a competitor of trying to sabotage your business, they could sue you for malicious prosecution. If you roll out a new marketing campaign and a competitor alleges you stole their advertising ideas, this policy would cover your legal costs to defend against the claim of copyright infringement.
Accidents can happen in the blink of an eye, and carrying general liability insurance protects small businesses from having to pay out of pocket in the aftermath.
2. Professional liability insurance
Professional liability insurance, also called errors and omissions insurance, protects small businesses against financial loss should their advice or services lead to financial damage for a client. It can be helpful to think of this coverage as a form of malpractice insurance specific to your line of work.
Professional liability goes beyond general liability to cover:
- Professional negligence
- Misrepresentation
- Violation of good faith and fair dealing
- Inaccurate advice
If you are self-employed as a consultant, or run a small consulting firm, your livelihood depends on making recommendations to clients based on your experience in the field. What if one of your proposals causes your client to lose money? They could sue you for that amount, claiming you provided faulty business advice. Without professional liability insurance, you may have to shoulder the legal fees and damages out of pocket.
Or let’s say you’re a wedding photographer and a client sues you after your memory card malfunctions after the ceremony — making the pictures you took irretrievable. Whatever the exact nature and risks of your profession, professional liability insurance protects against the financial consequences of making mistakes on the job.
3. Property insurance
Chances are your small business has invested in some combination of commercial premises, equipment, and supplies. Property insurance protects the value of these assets in case they’re damaged or destroyed by a cause covered under your policy.
Imagine you own a local salon. Late one night you get the phone call every business owner fears. From fires and break-ins to everyday accidents, your place of business — and the property inside it — can get damaged at any time. If you lack property insurance, you’ll have to pay to repair the building and replace your damaged equipment on your own.
It’s still important to have commercial property insurance even if you operate a home-based business. Why? Because homeowners’ policies typically exclude any equipment, supplies or other business property stored or used at your home, meaning it’s important to insure your work-related equipment separately.
4. Business interruption insurance
It’s only natural to focus on the cost of damaged equipment or premises in the wake of a disaster. But there’s another key cost to consider, too: The income you’re losing in the interim. Even if a disaster knocks your small business out of commission, recurring expenses — like utilities, payroll, rent/lease, etc.— will continue to pile up.
Business interruption insurance can keep your small business afloat until you’re operational again following a covered catastrophe. This type of policy can cover lost revenue, operating expenses, and costs associated with moving your business to a temporary location while you’re waiting for your commercial premises to become functional again.
General liability, professional liability, and business interruption insurance are three essential types of coverage for small businesses. That’s why you can often find them bundled together into a single Business Owners Policy (BOP). When you purchase BOP through Thimble, you can add additional coverage for your work equipment and vehicles, as well.
5. Product liability insurance
Of course, you stand behind your company’s products and services. Even so, there’s a chance a product you manufacture or sell to customers could malfunction — and if it does, you could face a lawsuit.
Most general liability policies provide a limit for products and completed operations. You do your best to provide safe, effective products, but a customer may suspect them of causing illness or injury. Your general liability insurance can cover medical expenses for those affected — and legal expenses if anyone sues.
6. Worker’s compensation
Here’s a good general rule: if your small business has employees of any kind, it likely needs workers’ compensation coverage. Requirements vary by state, but it’s a good idea to protect your workforce to the fullest extent. This way, employees who become injured or ill on the job can receive compensation for short- and long-term costs such as:
- Ambulance transportation
- Medical bills
- Physical therapy
- Lost wages
Carrying a workers’ compensation policy is a win-win: Employees receive compensation for work-related injuries and illnesses while your small business avoids a potential lawsuit.
7. Commercial auto insurance
Many small businesses use one or more vehicles for work-related purposes, which means they need commercial auto insurance — both to protect the value of these vehicles and to cover potentially costly litigation following an accident.
Most commercial auto policies include some combination of the below coverage types. You can tailor your policy to meet your specific business needs.
Collision coverage
This type of coverage kicks in if your vehicle is struck by another vehicle, or if your vehicle strikes an inanimate object or rolls over.
Physical damage coverage
Also known as comprehensive coverage, this type of coverage provides compensation physical loss or damage ranging from theft to fender-benders to weather-related damage.
Liability coverage
If you or your employees cause bodily injury or property damage to a third party while driving your commercially insured vehicle, your policy will cover the damages.
Uninsured motorist coverage
In the event someone with no little-to-no auto insurance hits your car, your policy can kick in to cover those damages.
We all like to think of ourselves as good drivers, but the truth is that everyone takes on a certain amount of risk every time they get behind the wheel. Don’t expect your personal auto insurance policy to protect your work-related transportation; only a commercial auto insurance policy can do that.
8. Cyber liability insurance
Cyber liability insurance is one of the newer types of small business insurance on the block. It’s meant to protect businesses against the effects of data breaches and cyberattacks.
For example, say you run a financial consulting business — which means you’re privy to sensitive client information. One day you discover a hacker has compromised your server and gained access to your stored files. Cyber liability insurance can help de-escalate an already bad situation and cover costs associated with notifying affected clients, recovering lost data, and mitigating legal fees.
9. Inland marine insurance
Don’t let the name throw you. Inland marine insurance is distinct from ocean marine insurance, which protects goods and equipment that are transported overseas. Inland marine insurance, on the other hand, provides coverage for goods, materials, and equipment that are transported or stored on land. (That’s why we call it Business Equipment Protection.)
Whether your business stores products for sale on-site, or ships products out to your customers, you’ll want to ensure they’re covered with Business Equipment Protection. The same applies if you have expensive or specialized equipment, especially if you bring that equipment along with you to client’s homes or offices. If something happens to your goods or equipment, Business Equipment Protection can help you cover the costs of repairing or replacing them.
10. Commercial umbrella insurance
Finally, there’s one more type of insurance small business owners should consider. Let’s say your business is found responsible for causing an accident where the repair costs exceed your current policy’s coverage limits. Or, you end up facing multiple lawsuits at once, and the total damages surpass your aggregate limit of liability.
If you’re in a line of business where you may be more vulnerable to lawsuits, umbrella liability insurance can provide additional protection. Specifically, umbrella insurance provides extra coverage that kicks in once your primary policy’s coverage limits are used up — be it from your general liability, auto, or product liability policy. Once the primary liability limits have been exhausted by the payment of claims, the umbrella “drops down” to cover any remaining unpaid claim amount. An umbrella policy is designed to protect you from the serious financial consequences of a large lawsuit which may exhaust your primary policy liability limits.
What types of insurance does your small business need?
It may seem daunting at first to get a handle on all the types of insurance a small business needs these days. But navigating the aftermath of an accident or disaster without insurance tends to be far more difficult than getting the coverage you need up front.
Luckily, it’s more convenient than ever to shop around for small business insurance. At Thimble, we write policies for small businesses that include general liability, professional liability, business equipment protection, and more. And, our on-demand insurance can be customized for your company’s exact needs — whether you need coverage for an hour, a day, a week, or a month. You can purchase $1 million or $2 million in general liability coverage without ever having to call an agent. Just tell us your zip code, and a few details about your business, and get your quote.
