7 Types of Insurance You Need to Protect Your Business

Find out the different types of business insurance so you can pick the right policy and coverage for your small business.

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From the day a small business owner starts a business they are opening themselves to losses. Before starting a website or hiring the first employee, consider having the proper types of business insurance figured out.

Some folks call insurance a ‘grudge purchase’ which can be extremely valuable when losses occur. Business insurance, in particular, can provide the necessary safeguards against losses suffered during the course of regular business activities.

In the event of a compensation claim, there are types of business insurance to protect the business owner and the claimant. Here are some insurance types that a business must have in place as soon as possible.

7 Different Types of Insurance

Wondering why insurance is needed? Here are some common types of insurance and what they protect small businesses from.

NEXT Insurance: Small Business Insurance Quotes Online
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If you're a small business owner looking for insurance coverage, consider using NEXT Insurance's online platform. You can easily shop for and apply for the most important types of coverage in just a few minutes. Plus, if you bundle policies, you can receive up to a 10% discount. Once you're signed up, you can access your certificate of insurance online for free and share it digitally with others. Take advantage of these benefits to get the coverage you need for your business.

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1. Professional Liability Insurance

Professional liability insurance, also known as errors and omissions insurance, is a type of insurance that protects professionals from legal claims and financial losses that may result from their professional services.

This type of insurance is typically purchased by professionals who provide advice or services to clients, such as doctors, lawyers, accountants, and consultants. It provides coverage for claims made against the professional due to errors, omissions, or negligence in their work.

Professional liability insurance policies cover legal fees and expenses associated with defending against a claim, as well as any damages or settlements that may be awarded to the plaintiff. This type of insurance can also provide coverage for breach of contract, defamation, and intellectual property infringement.

Professional liability insurance is important because it helps protect professionals from financial losses and reputational damage that can result from a claim or lawsuit. It can also provide peace of mind to clients who may be hesitant to do business with a professional who does not have insurance. The specific coverage and limits of a professional liability insurance policy can vary depending on the profession and the specific risks involved.

2. General Liability Insurance

General liability insurance is a type of insurance that provides coverage for a variety of third-party claims against a business. This type of insurance can help protect businesses from financial losses and legal expenses that may arise from bodily injury, property damage, or personal and advertising injury claims.

General liability insurance policies typically cover a wide range of incidents, including slip and fall accidents, damage to someone else's property, and claims of libel or slander. The policy can also provide coverage for legal fees and expenses associated with defending against a claim or lawsuit.

General liability insurance is essential for businesses because it helps protect them from financial losses that can result from claims made against them by customers, vendors, or other third parties. Without this type of insurance, a business may be at risk of significant financial liability and may not have the resources to cover legal expenses or settlement costs.

The specific coverage and limits of a general liability insurance policy can vary depending on the type of business and the level of risk involved. It is important for businesses to carefully review their insurance needs and consider obtaining additional coverage if necessary.

3. Property Insurance

Property insurance is a type of insurance that provides coverage for damage or loss to physical property, including buildings, equipment, and inventory. This type of insurance can help protect businesses and individuals from financial losses that may result from damage or loss to their property due to a covered event, such as fire, theft, or natural disasters.

Property insurance policies typically provide coverage for the cost of repairing or replacing damaged property, as well as additional expenses that may arise, such as temporary relocation or business interruption. The policy may also cover liability for damage to third-party property, such as if a tree falls on a neighbor's house.

The specific coverage and limits of a property insurance policy can vary depending on the type of property being insured and the level of risk involved. For example, a business that operates in a high-risk area, such as an area prone to hurricanes or earthquakes, may need additional coverage or higher limits to fully protect their property.

Property insurance is important for businesses and individuals because it helps protect against financial losses that can result from unexpected events. Without this type of insurance, a property owner may be responsible for covering the full cost of repairing or replacing damaged property, which can be a significant financial burden.

4. Business Owner’s Policy (BOP)

A Business Owner's Policy (BOP) is a type of insurance policy that combines several types of insurance coverage into a single policy. A BOP typically includes property insurance, liability insurance, and business interruption insurance.

Property insurance provides coverage for damage or loss to physical property, including buildings, equipment, and inventory. Liability insurance provides coverage for claims made against the business for bodily injury or property damage caused by the business or its employees. Business interruption insurance provides coverage for lost income and additional expenses that may arise if the business is unable to operate due to a covered event, such as a fire or natural disaster.

BOPs are designed to provide comprehensive coverage for small to medium-sized businesses at a lower cost than purchasing each type of coverage individually. BOPs are typically tailored to the specific needs of the business, with coverage and limits that are appropriate for the size and industry of the business.

BOPs are a popular choice for small businesses because they provide a convenient and cost-effective way to obtain important insurance coverage. However, not all businesses are eligible for a BOP, and the specific coverage and limits of a BOP can vary depending on the insurer and the policy.

5. Commercial Auto Insurance

Commercial auto insurance is a type of insurance policy designed to protect businesses that own and use vehicles in the course of their operations. This type of insurance provides coverage for physical damage to the vehicle as well as liability coverage for injuries or damages to third parties resulting from an accident involving the commercial vehicle.

Commercial auto insurance policies may also include coverage for theft, vandalism, and damage caused by natural disasters or other incidents. They can be tailored to cover a wide variety of commercial vehicles, including cars, trucks, vans, and buses used for business purposes.

Some of the businesses that may require commercial auto insurance include delivery companies, contractors, and businesses that provide transportation services. Commercial auto insurance is typically more expensive than personal auto insurance, but it provides the necessary coverage for businesses that use vehicles as part of their daily operations.

Commercial auto coverage protects you from dents, dings, tows and more, so you’re never in a jam. You can get commercial auto insurance from NEXT Insurance.

6. Worker’s Compensation

Worker's compensation is a type of insurance that provides benefits to employees who are injured or become ill as a result of their job. This insurance is designed to protect both the employer and the employee by covering medical expenses, lost wages, and other related costs that may arise from a work-related injury or illness.

In the United States, worker's compensation is a state-mandated program, which means that each state has its own laws and regulations governing the program. Employers are required to carry worker's compensation insurance to cover their employees in case of work-related injuries or illnesses.

The benefits provided by worker's compensation insurance typically include medical expenses, lost wages, and rehabilitation costs. In some cases, benefits may also be provided for permanent disability or death. The specific benefits and requirements may vary depending on the state and the circumstances of the injury or illness.

The goal of worker's compensation is to provide support and protection for employees who are injured or become ill as a result of their job, while also limiting the liability for employers.

Workers’ compensation can help protect your employees and your business after a workplace injury or illness. You can get it for as low as $14/month from companies like NEXT Insurance.

7. Directors and Officers Insurance

Directors and Officers (D&O) insurance is a type of insurance that provides coverage for claims made against a company's directors and officers for alleged wrongful acts or mismanagement of the company.

D&O insurance typically provides coverage for legal fees and expenses associated with defending against a claim or lawsuit, as well as any damages or settlements that may be awarded to the plaintiff. The policy may also provide coverage for regulatory investigations, shareholder derivative actions, and employment-related claims.

D&O insurance is important for companies because it helps protect directors and officers from personal financial liability and can help attract and retain talented individuals for these important roles. Without this type of insurance, directors and officers may be at risk of significant financial losses if they are personally named in a claim or lawsuit.

The specific coverage and limits of a D&O insurance policy can vary depending on the type of company, the size of the company, and the level of risk involved. It is important for companies to carefully review their insurance needs and consider obtaining additional coverage if necessary.

In addition, it is important to note that D&O insurance does not provide coverage for illegal or fraudulent activities, intentional misconduct, or bodily injury or property damage claims.

What Does Business Insurance Cover?

Business insurance typically covers a wide range of options including employers liability insurance, public liability insurance, and professional indemnity insurance, among others.

Running a business is fraught with challenges. Any time a business interacts with the general public, and other stakeholders, it is imperative that protection is offered against litigation, damages, accidents, and theft.

Coverage options typically vary from one business to the next – some businesses require substantial protection, others less so.

Where to Get Small Business Insurance

When you have the right business insurance coverage, you can enjoy peace of mind. Your source of income and livelihood is protected, allowing you to focus on what’s ahead of you. With your safety net in place, you can focus your attention on what matters most: your customers.

If you’re in a hurry you can get a quick quote from multiple lenders from the following:

  • NEXT: Next Insurance allows small-business owners to shop online for most important types of insurance coverage.
  • BizInsure: BizInsure is a leading online insurance service for small businesses. Compare and buy insurance online in minutes from leading carriers and no paperwork. Get professional liability, general liability, BoP, and workers comp from leading insurers.
  • Simply Business: Get quotes from top insurers and buy instantly with low monthly payments.
Our Pick
NEXT Insurance: Small Business Insurance Quotes Online
5.0

If you're a small business owner looking for insurance coverage, consider using NEXT Insurance's online platform. You can easily shop for and apply for the most important types of coverage in just a few minutes. Plus, if you bundle policies, you can receive up to a 10% discount. Once you're signed up, you can access your certificate of insurance online for free and share it digitally with others. Take advantage of these benefits to get the coverage you need for your business.

Get Instant Quote

Related: Best Business Insurance Companies

Insurance Options for Online Businesses

Many more businesses have turned to online businesses and home-based operations to generate income.

These types of businesses are growing in number, and encompass freelancers, virtual assistants, online stores, consultants, therapists, motivational speakers, and other gig economy jobs.

Home-based businesses are the perfect candidates for business insurance. Here are some examples of how home-based businesses can benefit from business insurance:

  • Businesses with physical stock inventories can benefit from stock cover insurance against damage, theft, and fire.
  • Professional indemnity insurance is offered to businesses which provide online services as opposed to physical products.
  • Public liability insurance should always be taken out if you have customers coming to your premises. As a business professional, you may find yourself dealing with intellectual property and personal client data. If this is the case, professional indemnity insurance is a valuable option.

Sole traders typically don't need employers’ liability insurance, but there are various other considerations to bear in mind such as tradesman insurance policies.

Is Business Insurance Legally Required?

It varies from one business to the next, and one country to the next. If a business has staff, employers liability insurance is required. Professional indemnity insurance is typically required by regulatory authorities too.

Business owners are often mandated by law to provide some form of business insurance such as employers liability coverage. Various professions are also subject to insurance, such as lawyers, doctors, traders, and service professionals.

Sometimes, there is no legal requirement for business insurance, but this doesn't negate the importance of having business insurance, or the protection that it offers when you least expect it. It is one of those purchases you make to protect your business from liability, loss, and legal fees.

Business Insurance Costs

Business insurance costs will vary from one client to the next. Everyone's coverage needs differs, based on a host of factors including risk. As a rule, you can expect a high-risk business to be associated with higher insurance costs and increased insurance coverage.

The insurance premium you pay is dependent upon these factors, the type of coverage you need, and the size of your contracts. Insurance agents will calculate the likelihood that you will be making claims and the amount of those claims. If you are found to be a high-risk client, your premiums will be higher.

It's important not to shoot too low when choosing coverage protection. High-risk industries often need maximum coverage to protect against accidents, theft, loss, fire, flooding, litigation and so forth.

Business insurance options include:

  • public liability insurance
  • professional indemnity insurance
  • business buildings insurance
  • employers liability insurance
  • product liability insurance
  • stock insurance
  • business interruption insurance
  • personal accident insurance
  • stock insurance
  • business legal protection insurance

Each insurance option is designed for specific types of protection. If your business currently employs people, personal accident insurance is essential. Public liability insurance, on the other hand, is equally important when your business deals with members of the public.

When Should You Get Business Insurance?

The good news is that you can get business insurance even before your business has been registered.

That means you can pick a business insurance policy before you start your business. Whether you are a close corporation, S corporation, or a sole trader, you can simply complete the necessary paperwork to apply for a company registration and then buy your business insurance.

Remember though, your business doesn't have to be registered before you purchase business insurance. However, the insurance company will need to have certain details available, including your projected revenue, the type of business activity you conducting, and your business address.

  • Small business insurance coverage offers protection against many types of perils.
  • General liability insurance covers accidents and property damage, legal fees, personal injury, and medical fees.
  • Professional liability insurance (errors & omissions) is ideal for business owners who are being accused of professional errors.
  • Commercial auto insurance is ideal for any damages incurred by your business through your business vehicle.

If ever you're involved in an accident, commercial auto insurance can help you. Workers compensation insurance is for anyone who works at a company and gets hurt on a job. This insurance pays out medical expenses and lost wages. It also means that employers will be protected against negligence lawsuits.

4 Risks of Operating a Business Without Insurance

Every good business owner knows the way to maximize profits is to minimize expenses. Looking for ways to do more with less is one of the smartest things any entrepreneur can do. Within that though, you must be careful to avoid instances of false economy. 

Some tactics can look like they’ll garner savings — and might even do so for a while — then turn out to be more costly. This is one of the primary risks of operating a business without liability insurance. While it might look like you’re conserving your capital, you could be setting yourself up for catastrophic expenditures down the road.

Let’s take a look at some of these risks.

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1. Violating the Law

In some instances, you might be legally required to purchase certain types of business insurance. This is particularly true if the conduct of your business could expose the general public to injury or property damage. For instance, independent contractors in some states must carry a license and proof they have a minimum amount of insurance.

If an incident occurs and finds you lacking the proper insurance coverage, you’ll be forced to pay out of your own pocket. One expensive incident like this could drive your business into bankruptcy.

2. Customer Lawsuits

If you visit a client’s workplace or home, have access to their equipment, or represent their business, you’re open to liability claims. In the event of an unfortunate incident that occurs in any of the above scenarios, you’ll be responsible for shouldering the financial burden. 

If that should happen to be the loss of a life or a permanent disability, you could well find yourself making payments the injured party for the rest of your days. 

You need liability insurance if your business: 

  • Has a location that is open to the public
  • Interacts with third parties on job sites
  • Handles client property
  • Rents an office or a storefront
  • Sells products or offers services to customers
  • Advertises or markets its services
  • Uses social media and has an internet presence

All of these activities put you at risk for lawsuits arising from allegations of damage or injury to others. 

Carrying a General Liability policy from a provider like Verifly will protect you against:

  • Bodily injury to third parties
  • Medical expenses for third parties
  • Personal/advertising injury to third parties
  • Property damage to third parties
  • Legal expenses associated with these claims

3. Exclusion from Business Opportunities

There are situations in which you’ll need to have proof of General Liability insurance to qualify to bid on a contract. Potential partners and clients want to know they will be indemnified from any damage or injury you, your employees, or a piece of your equipment might cause.

If you cannot show proof of insurance, you’ll lose out on the opportunity in favor of a competitor who can provide a certificate of insurance. 

4. Loss of Your Investment, Business, and Personal Property

You could lose your business if you’re found culpable in a lawsuit and lack insurance — ordered to pay thousands or even millions of dollars in damages.

After all, the money will have to come from somewhere

You could be forced to liquidate your assets to satisfy the judgment and — if the settlement order is for more than you can get from the sale — your personal property could be at risk too. 

It’s Not Worth the Risk

Bottom line, the potential risks of operating a business without liability insurance are overwhelming. While avoiding the purchase of a General Liability policy might feel like you’re saving money, you’re betting against fate. 

Yes, you might get away with it — anything is possible.

However, the costs of getting caught up in a claim are so much greater than the savings you’ll achieve. Why put in the time, energy, and resources to build your future, only to leave it subject to destruction by an unforeseen incident?

After all, anything is possible.

This brief intro to business insurance provides a basic framework within which your business can protect itself and its stakeholders.

The costs of business insurance depend on multiple factors including the location of your business, the number of people you employ, and your type of industry.

Other factors to consider include your scope of operations, your experience, and your small business budget.

Generally, the longer you have been in business, the lower your insurance premiums.

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About the author

Brian Meiggs
Hi, I'm Brian Meiggs! A personal finance expert, entrepreneur, and the founder of My Millennial Guide. My drive is to help others unlock the wealth of freedom and pave the path to financial success. With my bachelor's degree in finance, I help millennials follow the smart money in order to increase their earning potential and start building wealth for the future. I write regularly about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. I have been quoted in major publications including Business Insider, Yahoo Finance, NASDAQ, Discover, GoDaddy, BiggerPockets, Fox News, Debt.com, Quick Sprout, Money Geek, MSN Money and many more!