Top Business Insurance Policies Every Small Business Needs

For small business owners, having the right insurance is crucial to protecting your company from unexpected risks. From liability to property and employee coverage, here’s a look at the top business insurance policies every small business should consider to ensure comprehensive protection and long-term stability.

1. General Liability Insurance

General liability insurance (GLI) is essential for all small businesses. It covers legal expenses and potential settlements if your business is found liable for bodily injuries, property damage, or personal injuries (like slander or libel) caused to others.

What It Covers: Bodily injury, property damage, and legal fees related to accidents or claims of negligence.
Why It’s Essential: Even minor accidents can lead to costly lawsuits. GLI provides a foundational layer of protection against everyday risks.
Who Needs It: Every small business, especially if you interact with customers, clients, or the public.
Tip: Most businesses combine GLI with property insurance to create a business owner’s policy (BOP) for broader coverage at a more affordable rate.

2. Commercial Property Insurance

Commercial property insurance protects your business property, including buildings, equipment, inventory, and furnishings, against damage or loss from events like fire, theft, or vandalism.

What It Covers: Physical assets like buildings, furniture, equipment, and inventory.
Why It’s Essential: Property damage can be expensive to repair or replace, and this coverage helps ensure your business can recover quickly after a loss.
Who Needs It: Businesses with physical assets, such as retail stores, offices, or manufacturing facilities.
Tip: Consider business interruption coverage with your property insurance to cover lost income if you’re temporarily unable to operate after a covered event.

3. Business Owner’s Policy (BOP)

A business owner’s policy combines general liability and property insurance into one convenient policy, providing essential coverage for small businesses at a more affordable rate than purchasing these policies separately.

What It Covers: Typically includes general liability, commercial property insurance, and sometimes business interruption insurance.
Why It’s Essential: A BOP provides a balanced level of protection, making it a popular choice for small businesses.
Who Needs It: Small to mid-sized businesses that need both liability and property coverage.
Tip: Check with your insurer to see if you can customize a BOP with additional coverages, such as data breach or professional liability insurance, to better meet your business needs.

4. Professional Liability Insurance (Errors and Omissions Insurance)

Professional liability insurance, also known as errors and omissions (E&O) insurance, is crucial for businesses that provide professional services or advice. It covers claims of negligence, errors, or omissions that result in financial losses for clients.

What It Covers: Legal costs and settlements related to claims of professional negligence or mistakes.
Why It’s Essential: If your business offers services or advice, a client could sue if they believe your work caused them financial harm.
Who Needs It: Service-oriented businesses like consultants, accountants, lawyers, and IT professionals.
Tip: Professional liability coverage requirements vary by industry, so check if your profession has specific regulations.

5. Workers’ Compensation Insurance

Workers’ compensation insurance is typically required by law for businesses with employees. It covers medical expenses, lost wages, and rehabilitation costs if an employee is injured or becomes ill due to work-related activities.

What It Covers: Employee medical expenses, lost wages, and rehabilitation costs related to work injuries or illnesses.
Why It’s Essential: Protects both employees and employers from the financial impact of workplace injuries and helps ensure compliance with state laws.
Who Needs It: Any business with employees, as it’s legally required in most states.
Tip: Workers’ compensation also protects business owners from employee lawsuits related to workplace injuries, which adds an extra layer of financial protection.

6. Commercial Auto Insurance

If your business uses vehicles for any purpose—whether deliveries, client meetings, or transporting goods—commercial auto insurance is essential. It covers costs associated with accidents, damages, and liability involving business vehicles.

What It Covers: Vehicle damage, liability, medical expenses, and property damage resulting from accidents involving business vehicles.
Why It’s Essential: Personal auto insurance generally doesn’t cover business use of vehicles, so commercial auto insurance is necessary for protection.
Who Needs It: Businesses that own or lease vehicles, or whose employees use personal vehicles for business purposes.
Tip: For businesses using employees’ personal vehicles for work purposes, consider hired and non-owned auto insurance as an add-on to cover liability.

7. Cyber Liability Insurance

As data breaches and cyberattacks become more common, cyber liability insurance is increasingly important. This coverage protects businesses from the financial impact of data breaches, cyberattacks, and the associated costs of recovery and liability.

What It Covers: Data breach response, legal fees, client notification, and potential fines or penalties related to cyber incidents.
Why It’s Essential: A cyberattack can disrupt operations, damage your reputation, and result in substantial recovery costs.
Who Needs It: Any business that stores sensitive client information, uses online platforms, or handles financial transactions.
Tip: Look for policies that cover both first-party costs (your business’s expenses) and third-party costs (expenses related to client claims).

8. Employment Practices Liability Insurance (EPLI)

Employment practices liability insurance protects against claims related to employment practices, including allegations of wrongful termination, discrimination, sexual harassment, and other workplace issues.

What It Covers: Legal fees, settlements, and judgments related to employment practices claims.
Why It’s Essential: Employment-related lawsuits are common and costly, especially for small businesses without a dedicated HR team.
Who Needs It: Businesses with employees, especially in industries prone to employment disputes.
Tip: Many insurers offer EPLI as a standalone policy or as an add-on to a BOP. Ensure that the coverage meets your business’s specific employment risks.

9. Product Liability Insurance

Product liability insurance is vital if your business manufactures, distributes, or sells physical products. It protects against claims of bodily injury or property damage caused by defective or unsafe products.

What It Covers: Legal defense costs, settlements, and damages related to injury or damage caused by your products.
Why It’s Essential: A defective product can lead to costly lawsuits and damage your brand’s reputation.
Who Needs It: Manufacturers, wholesalers, distributors, and retailers of physical products.
Tip: Make sure the policy covers both the design and manufacturing aspects of your products, as well as potential liabilities related to product labeling or instructions.

10. Business Interruption Insurance

Business interruption insurance, often included in a BOP, covers lost income and operating expenses if your business has to close temporarily due to a covered event, like a fire or natural disaster.

What It Covers: Lost income, rent, payroll, and other ongoing expenses while your business is closed due to covered property damage.
Why It’s Essential: This coverage helps you maintain financial stability while you rebuild or relocate after a disaster.
Who Needs It: Any business that relies on a physical location to generate income, like retail stores, restaurants, and offices.
Tip: Check if the policy includes civil authority coverage, which can cover income loss if government-mandated closures impact your business.

11. Key Person Insurance

Key person insurance provides financial protection if a critical member of your business, such as a founder or key executive, passes away or becomes disabled. The policy helps cover the cost of finding a replacement or the potential loss of income.

What It Covers: Death benefits to help cover the costs associated with the loss of a key individual, such as hiring and training a replacement.
Why It’s Essential: Losing a key person can significantly impact business operations and revenue, making this coverage valuable for continuity.
Who Needs It: Businesses that rely heavily on specific individuals for their success, like small partnerships or founder-driven companies.
Tip: The policy is owned and paid for by the business, and the business is the beneficiary, ensuring the funds go directly toward covering the impact of the loss.

12. Umbrella Insurance

Umbrella insurance provides additional liability coverage that extends beyond the limits of your primary liability policies, such as general liability or commercial auto insurance. It’s useful for businesses that want extra protection against high-cost claims.

What It Covers: Additional liability coverage for bodily injury, property damage, and personal injury claims.
Why It’s Essential: Provides an extra layer of financial protection if a claim exceeds the limits of your existing policies.
Who Needs It: Businesses with higher liability risks, such as those that interact frequently with the public or have high-value assets.
Tip: Umbrella insurance is a cost-effective way to increase your liability protection, especially for businesses exposed to multiple liability risks.

Conclusion

Each of these insurance policies plays a unique role in protecting your small business from various risks, helping ensure your company can recover from unexpected events without devastating financial losses. Start by considering essential coverage, such as general liability, property, and workers’ compensation, then add policies like cyber liability, product liability, or key person insurance based on your business’s specific needs. Regularly review your coverage with a licensed insurance advisor to keep your business protected as it grows and evolves.