Small business insurance, sometimes called commercial insurance, helps protect a business’s assets, property, and income. A business owner’s policy (BOP) is the most common insurance product for small businesses, according to the Insurance Information Institute (III). A BOP typically includes three basic types of coverage to help protect a business: business property coverage, general liability coverage, and business interruption coverage.
If you’re a small business owner, you may also be able to buy additional insurance coverages to customize your policy based on your business’s specific needs. These additional coverages may include commercial auto coverage, errors and omissions coverage, key employee coverage, and more.
Key Takeaways
- Small business insurance protects against legal claims, property damage, employee injuries, and more.
- Policies include general liability, BOPs, professional liability, and workers’ comp.
- Costs vary, but basic coverage is affordable for most small businesses.
- Choosing the right policy requires understanding your risks and comparing providers.
- In 2025, cyber liability and flexible coverage options are more important than ever.
- Not having insurance could lead to catastrophic financial loss.
- Regular reviews and updates of your policy ensure ongoing protection as your business grows.
What Is Small Business Insurance?
Small business insurance is a policy or collection of policies designed to protect a business’s physical assets, financial health, employees, and legal liability from unexpected events. Whether you’re a freelancer, shop owner, or startup founder, this form of insurance helps shield your enterprise from the financial fallout of various disruptions.
Types of Small Business Insurance
General Liability Insurance (GLI)
What It Covers:
- Bodily injuries to third parties (e.g., customer slips in your store)
- Property damage to others’ property
- Personal injuries like defamation or slander
- Legal fees and settlements related to covered claims
Who Needs It:
- All businesses, regardless of size or industry
Why It’s Important:
General liability is often required by landlords, clients, and even licensing boards. It’s the foundation of any business insurance plan.
Professional Liability Insurance (Errors and Omissions – E&O)
What It Covers:
- Claims of negligence or mistakes in your professional service
- Misrepresentation, inaccurate advice, or failure to deliver promised results
Who Needs It:
- Consultants, accountants, financial advisors, IT professionals, designers, and lawyers
Why It’s Important:
Even if a claim is baseless, defending against lawsuits can be costly. Professional liability protects you from financial loss due to these lawsuits.
Business Owner’s Policy (BOP)
What It Covers:
- Combines general liability and commercial property insurance
- Can include business interruption insurance
Who Needs It:
- Small to mid-sized businesses with physical locations or assets
Why It’s Important:
A BOP offers a cost-effective, convenient way to get essential coverages in one bundle. It’s especially useful for retail shops, small restaurants, or local service providers.
Commercial Property Insurance
What It Covers:
- Damage to your owned or rented building, equipment, inventory, and furniture due to fire, theft, vandalism, and storms
Doesn’t Cover:
- Floods and earthquakes (these require separate policies)
Who Needs It:
- Any business with a physical presence or valuable equipment
Why It’s Important:
If your storefront or inventory is damaged, commercial property insurance helps you recover and continue operating.
Workers’ Compensation Insurance
What It Covers:
- Medical expenses and lost wages for employees injured on the job
- Rehabilitation costs and death benefits
- Legal fees if an employee sues
Who Needs It:
- Required by law in most states if you have one or more employees
Why It’s Important:
Workers’ comp shields you from lawsuits while taking care of your employees. It ensures compliance and protects your financial health.
What Is a Business Owner’s Policy?
A Business Owner’s Policy (BOP) is a convenient and cost effective insurance option for small businesses. It combines the coverage of all major liability and property insurance risks into one insurance policy package meant to specifically meet the coverage needs of small businesses. A Business Owner’s Policy combines the following common insurance coverage options into one bundle:
- General Liability Insurance: To protect your company from loss caused by common liability risks, such as injury and property damage.
- Commercial Property Insurance: To cover your business property from natural disaster, civil unrest and crime.
- Business Income Insurance: To compensate you for the money lost following a disaster that caused your business operations to stop for a period of time.
The major benefits of small business insurance
Small business insurance doesn’t just cover workers’ comp claims; it protects you financially if your commercial property is destroyed and if your business is sued. It also demonstrates to your clients and business partners that you are financially solvent and responsible enough to plan for unforeseen circumstances. The right small business insurance policies can give small businesses an advantage:
Land client contracts
Clients may insist that you carry professional liability or errors and omissions insurance before they work with your business.
Sign commercial leases
Landlords may require you to carry property insurance for the building’s contents and general liability insurance to cover any responsibility for visitor injuries.
Comply with state regulations
As previously noted, many states require businesses to carry workers’ comp insurance. You will also need commercial auto insurance if you have business vehicles.
To get the most protection out of your small business insurance policy, be sure that:
Your policy addresses your most pressing risks
It’s important for small business owners to prioritize the type of coverage they need over premium costs. There’s no point in paying for a policy that doesn’t address your company’s primary risks.
Your coverage limits are adequate
A licensed insurance agent can help you determine the best policies based on your business’s risk profile, revenue, and needs.
How Much Does Small Business Insurance Cost?
The cost of small business insurance depends on your industry and the specific risk factors affecting your company. To evaluate the cost of your small business insurance coverage, an insurance agent will look at the following:
- The risk level of your industry
- The location of your business
- The size, age and condition of your business property
- The number of employees at your company
- Your annual income
According to a survey conducted by Insureon, the average yearly cost of business insurance is $1,281.
What Insurance Is Required for Small Business?
Small businesses that employ workers are required to have workers compensation in most states. If you employ fifty or more full-time equivalent employees, you’re required to provide health care insurance under the Affordable Care Act. There are other forms of insurance that companies need to protect themselves from loss, even though they’re not required by law. Here are the common types of small business insurance your company could need:
General Liability Insurance
General liability insurance is applicable to all types of small businesses. It provides coverage against losses to your business due to property damage, injury, medical expenses, lawsuits, libel and slander.
Commercial Property Insurance
Commercial property insurance is a good idea for any company that owns a significant amount of property, equipment and assets. It protects your company from loss and damage to your business property due to natural disasters, civil disruption or vandalism and other crimes.
Business Income Insurance
Business income is a good investment for all small businesses. It provides coverage of your income in the event that your company has to stop operating for a period of time because of property loss or damage caused by fire, storms, or other disasters.
Professional Liability Insurance
Professional liability is recommended for all businesses that provide professional services to clients, including lawyers, accountants, doctors and more. It provides protection from financial loss stemming from mistakes, negligence or malpractice in the workplace.
Product Liability Insurance
Product liability insurance gives important coverage for small businesses that manufacture and sell products. It protects your company from financial loss stemming from faulty goods that cause injury or other harm to a customer or employee.
Commercial Auto Insurance
Commercial auto auto insurance is needed by all businesses that use work vehicles, even if those vehicles are already covered by a personal policy. Commercial auto insurance covers work cars and trucks, as well as their drivers, from financial losses stemming from accidents.
Commercial Flood Insurance
Commercial flood insurance is recommended for all businesses, but especially those in coastal areas prone to flooding. It covers the cost of damage to your business property in the event of a flood.
Commercial Umbrella Insurance
Umbrella insurance acts as a liability safety net. It extends the coverage limits of your liability insurance policies. If a liability claim against your company exceeds the limits of your general liability policy, commercial umbrella insurance can kick in and help cover the excess liability claim. It serves as an extra layer of protection against liability.
Workers Compensation
Workers compensation is recommended for all businesses with employees and is mandatory in most states. It provides benefits to employees who become ill or injured in the workplace.
Also Read : What Is Home Insurance And Why Do You Need It?
Conclusion
Whether you’re running a side hustle or managing a full-fledged enterprise, small business insurance isn’t just a safety net—it’s a growth enabler. It lets you take risks, sign contracts, and serve customers with confidence, knowing you’re protected from unexpected setbacks.
In an increasingly litigious and unpredictable world, small business insurance is no longer optional. It’s the armor every entrepreneur needs to shield their dreams from disruption.
FAQs
1. Do I need insurance if I’m a freelancer or solo entrepreneur?
Yes. General liability or professional liability insurance can protect you from lawsuits or client disputes.
2. What’s the difference between a BOP and general liability insurance?
A BOP bundles general liability with property insurance, offering broader coverage at a better rate.
3. Is business insurance tax deductible?
Yes. In most jurisdictions, premiums for business insurance are considered a deductible expense.
4. Can I cancel my policy anytime?
Most policies allow cancellation, but you may be subject to fees or lose certain benefits.
5. How do I know how much coverage I need?
Evaluate your business risks, revenue, and asset value. An insurance broker can help assess your exact needs.
6. Does small business insurance cover online operations?
Standard policies may not cover cyber risks. You’ll need a cyber liability add-on or separate coverage.
7. Will my premium increase if I file a claim?
It can, especially if multiple claims are made in a short time or the payout is large.
