There are a few things every business needs just to get by: a solid business plan, adequate startup capital, good credit (personal and business-wise, which you can check for free on Nav), and, yes, comprehensive insurance.
Of course, depending on the size and type of business you’re running, “comprehensive” can mean a number of things. There’s a boatload of business insurance policies on the market; not to mention, if you have employees, state law comes into play. But there are some ways to boil down the basics. Here’s a primer on insuring your business.
What Basic Insurance Does a Business Need?
Per the Insurance Information Institute, most businesses need, at a minimum, four types of coverage: property insurance, liability insurance, business vehicle insurance and workers’ compensation insurance.
1. Commercial Property Insurance
Property insurance covers (you guessed it) the property your business operates out of and any vital items inside (think office furniture, equipment, the products in stock, computers, etc.). Property insurance provides compensation if the covered location or items are lost, damaged or stolen. Note: It’s a good idea to carry business property insurance even if you’re operating out of your garage or home office, since your homeowners’ insurance likely doesn’t provide adequate coverage — even if you add a rider that covers business property losses.
2. Liability Insurance
Liability insurance protects you in the event your business gets sued for negligence. Liability insurance covers legal expenses, damages (should you lose the case) and medical bills incurred by someone hurt by your business.
There are specialized types of liability insurance you might need, again, depending on the size and scope of your business. That includes professional liability insurance — commonly known as errors and omissions insurance (E&O) — which covers you against malpractice. (So physicians or lawyers, for instance, would likely opt for an E&O policy.) There’s also specialized product liability insurance designed to cover you if a defective product causes someone harm.
3. Business Vehicle Insurance
This policy covers any vehicles you use for operations. Keep in mind, you likely need business vehicle insurance, even if the only ride you’re using is your own. Most standard auto insurance policies won’t cover cars used primarily for business.
4. Workers’ Compensation Insurance
Workers’ compensation insurance covers medical expenses and lost wages if an employee is injured on the job. Laws vary by state, but almost all of them (excluding Texas) require hiring businesses to carry workers’ compensation coverage. Most companies are also required by law to pay unemployment insurance taxes. And, in some states, you’ll need disability insurance if you have employees as well. The Small Business Administration (SBA) suggests visitings your local Workers’ Compensation Office to find out exactly what insurance your state requires. Online insurance services like Cerity Insurance make obtaining a policy simple and easy.
What’s a Business Owner’s Policy?
If all this insurance lingo is stressing you out, take a deep breath. Sure, you might need a multitude of policies, but insurance companies offer what’s known as a business owner’s policy (BOP), which packages coverage. According to the SBA, BOPs commonly include property insurance, general liability insurance and business interruption insurance, which covers loss of income if a company can’t operate due to disaster, and other common policies. (Workers’ compensation insurance and other employee-centric insurance policies are generally sold separately.) And, just like with personal insurance policies, bundling can lead to lower premiums. Of course, your business may need more coverage than a BOP provides.
How Much Coverage Does My Business Need?
That depends, of course, but you’ll want enough to at least cover all your assets. You can get an idea of what amount of property insurance you’ll need by calculating the cost of your property, product equipment, etc., the Insurance Information Institute says.
Beyond that, a reputable insurance broker or agent can help you assess your business’s risk and recommend what policies you’ll need and how much coverage you should opt for. Shopping around and comparing quotes will help you get an idea of fair-market value.
This article was originally written on August 16, 2017 and updated on May 27, 2020.
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