Small Business Insurance: What Every Owner Needs

Why Business Insurance Is Not Optional

A single lawsuit, a fire, a data breach, or an employee injury can destroy a small business that lacks adequate insurance. Roughly 40% of small businesses never reopen after a major uninsured loss. And unlike a personal financial setback, a business loss can consume both the company's assets and your personal assets if your business structure does not fully protect you.

Even if you operate a low-risk business, insurance is often a practical requirement before you can do business at all. Commercial landlords require it before signing a lease. Clients and contractors require it before signing contracts. And several types of coverage are legally mandated once you hire employees.

Essential Coverages for Small Businesses

General Liability Insurance

General liability (GL) is the foundational policy for virtually every business. It covers three categories of claims made by third parties:

• Bodily injury: A customer slips on your wet floor and breaks a wrist. GL covers their medical expenses, legal fees, and any settlement.
• Property damage: Your employee accidentally damages a client's office while performing a service.
• Personal and advertising injury: Claims of libel, slander, or copyright infringement in your advertising.

A standard GL policy provides $1 million per occurrence and $2 million aggregate. Premiums range from $400 to $2,000 per year depending on your industry, revenue, and location.

Professional Liability Insurance (Errors & Omissions)

If your business provides professional services or advice — consulting, accounting, IT services, marketing, architecture — professional liability insurance protects you against claims that your work was negligent, incorrect, or failed to deliver promised results. General liability does not cover these claims. Premiums for small professional services firms typically range from $500 to $3,000 per year.

Commercial Property Insurance

Commercial property insurance covers your business's physical assets: the building you own or lease improvements, furniture, equipment, inventory, computers, and supplies. Important considerations:

• Replacement cost vs. actual cash value: Replacement cost coverage is significantly more valuable.
• Business income/interruption coverage: Pays for lost revenue and ongoing expenses while your business is shut down due to a covered property loss.
• Equipment breakdown: Standard property insurance may not cover mechanical or electrical breakdown of specialized equipment.

Workers' Compensation Insurance

Workers' comp is legally required in nearly every state once you have employees. It covers medical expenses, lost wages (typically 60% to 70% of the employee's salary), rehabilitation costs, and death benefits for workplace injuries or illness.

Premiums are calculated based on your payroll, industry risk classification, and claims history. A low-risk office-based business might pay $0.20 to $0.50 per $100 of payroll, while a roofing contractor might pay $10 to $25 per $100 of payroll.

Business Owner's Policy (BOP)

A BOP bundles general liability, commercial property, and business interruption coverage into a single, discounted package — often 15% to 30% cheaper than purchasing separately. A typical BOP costs $500 to $3,500 per year. However, BOPs do not cover professional liability, auto, workers' comp, or health insurance.

Commercial Auto Insurance

If your business owns vehicles or if employees regularly use personal vehicles for business purposes, you need commercial auto coverage. Personal auto policies exclude business use in many circumstances.

Cyber Liability Insurance

If your business collects or processes customer data, cyber liability insurance covers the costs of a data breach:

• Notification costs (legally required in all 50 states)
• Credit monitoring for affected individuals
• Legal defense and regulatory fines
• Forensic investigation
• Business income lost during system downtime
• Ransom payments in ransomware attacks

The average cost of a data breach for a small business is approximately $120,000 to $150,000. Cyber liability premiums typically range from $500 to $2,500 per year.

Industry-Specific Needs

• Restaurants and food businesses: Liquor liability, food contamination coverage, spoilage insurance.
• Construction and trades: Contractor's equipment floaters, builder's risk, surety bonds.
• Healthcare providers: Medical malpractice, HIPAA-specific cyber coverage.
• Retail and e-commerce: Product liability for injuries caused by products you sell or manufacture.
• Transportation and delivery: Motor truck cargo coverage, hired and non-owned auto.

How Much Does Small Business Insurance Cost?

• Low-risk office/consulting: $1,500 to $4,000 per year for GL, E&O, and property.
• Retail store: $2,000 to $6,000 per year for a BOP plus workers' comp.
• Restaurant: $3,000 to $10,000 per year for a BOP, workers' comp, and liquor liability.
• Contractor: $4,000 to $15,000+ per year for GL, workers' comp, commercial auto, and equipment coverage.

When to Buy Business Insurance

1. Before you sign a lease: Your landlord will require a certificate of insurance.
2. Before you hire your first employee: Workers' comp must be in place on day one.
3. Before you sign your first client contract: Many contracts require proof of coverage.
4. Before you launch: Even a pre-revenue business faces liability risks.

Common Mistakes to Avoid

• Assuming your LLC fully protects you. Courts can pierce the corporate veil, and an LLC does not protect you from personal negligence claims. Insurance is the more reliable protection.
• Underinsuring to save on premiums. The premium difference between $500,000 and $1 million in GL coverage is often just $100 to $300 per year.
• Forgetting to update coverage as you grow. A policy based on $200,000 in revenue will not adequately cover a business now doing $800,000. Review coverage annually.
• Overlooking contractual insurance requirements. Many commercial contracts specify minimum coverage types and limits.
• Buying only from one source. Work with an independent commercial insurance broker who can shop multiple carriers.

Getting Started

Contact an independent commercial insurance broker — not a single-carrier agent — who specializes in small business coverage. Come prepared with your revenue figures, employee count, a description of your operations, and any contractual insurance requirements. A good broker will identify your specific risks, recommend appropriate coverages and limits, and shop multiple carriers. The initial consultation should be free, and the investment in adequate coverage will be among the best financial decisions you make for your business.