Last updated: November 24th, 2022
Reviewed by
Rebecca Thrift
Licensed Insurance Agent
Table of Contents
Business insurance is designed to protect businesses from all sorts of risks. It protects physical assets and property against damage, vandalism, and theft, and it protects against damages due to employee injuries. Business insurance can also provide protection against loss of income, thus shielding the company’s financial assets, and it can provide resources to protect intellectual property and help you cope with lawsuits.
Running a business comes with a lot of risks, financial and otherwise. However, business insurance can provide a buffer against many of those risks. Take a look at some of the advantages of a business insurance policy:
There are very few disadvantages to having a business insurance policy. However, businesses can run into problems if they don’t have enough insurance or the right kind of insurance.
In some cases, businesses are confronted with claims their insurance doesn’t cover. That disadvantage can be balanced by making sure you have adequate insurance and understand what’s covered and what isn’t.
If you have to file an insurance claim, the process can be time-consuming and frustrating. Waiting for insurance payouts can also push a young business into financial straits. Staying focused on the insurance process and providing all the needed information can drain your company of resources of energy, and even more so if the claim is denied.
Business insurance can also be costly, depending on the type of insurance needed. Businesses whose employees may be prone to injury, such as construction companies, may have an especially high expense line item for business insurance. Businesses may seek to avoid this expense — and then find themselves underinsured when they actually need coverage.
Almost every business that’s larger than an artisan creating one-off home decor pieces for sale on Etsy needs some kind of business insurance — and that Etsy crafter may need some insurance as well. Certainly, every business with employees needs workers’ comp insurance, at the very least, which is required by law in most states.
In addition, every business with a physical location will require some insurance on their premises — insurance which is likely to be required by their landlord or mortgage lender. Coverage on the physical premises can include buildings, permanent fixtures, machinery, equipment, furniture, inventory, and the personal property of anyone on the premises.
Yes, small businesses should have insurance. While it can be hard to understand its necessity when things are going well, when the time comes that you need it, you can’t do without it.
Small businesses should have insurance to protect their employees. Some employee insurance, such as workers’ compensation, is mandated. Other insurance can be offered to employees as a perk, such as health insurance. Employees feel more secure in their job if they know any damage they incur on the job will be covered.
You should also protect your property and premises with insurance. If a small business rents its brick-and-mortar premises, there’s a good chance the landlord’s property insurance won’t cover the business. Your landlord may require you to carry business insurance. If you’re financing your business in any way, your lender is also likely to require that you carry insurance. Your contracts with clients may require specific types of insurance as well.
Even a small business can be destroyed by a natural disaster or by theft. In fact, a small business may be more vulnerable to damage in these instances because it doesn’t have the deep pockets of a large enterprise to rebuild or weather a downturn.
Similarly, small businesses can be especially susceptible to danger in the event of a lawsuit. Without the resources to fight back in court, a small business could be shut down completely simply because it can’t handle legal bills on top of everyday expenses. Liability insurance can provide protection that keeps your doors open and your bills paid.
While sole proprietors and self-employed individuals may think their low profile means less need for insurance, they actually face a comparatively high level of risk. These ultra-small companies typically don’t have the resources needed to handle a legal challenge or weather a storm, whether literal or figurative. Having the right types of insurance can ultimately be as crucial to a sole proprietor as having a solid business plan.
At minimum, most sole proprietors need some version of general business liability insurance. This insurance will cover injuries to other people doing business with you (including so-called “slip-and-fall” insurance). It covers damages to your company’s reputation or claims occurring as a result of advertising mistakes or defamation. It also protects property damaged in the course of your business. For example, a house painter who’s a sole proprietor might tap into that insurance if a homeowner claims the painter damaged the antique molding of the home being painted.
The types of insurance a company needs depends on the specifics of that organization’s size, physical presence, number of employees, and location. Companies in certain industries may require specialized business insurance. Most companies need liability insurance, workers’ compensation insurance, and property insurance.
Also known as commercial liability or business liability insurance, this insurance covers a business against claims for injury or property damage during business operations. Without it, the business could be held liable for medical bills or the replacement of damaged property.
If your business produces products, you should carry product liability insurance to protect against any claims that your products caused personal injury or property damage. Without this coverage, you’re liable for any claims stemming from product defects, including medical costs, legal fees, and any legal judgments or settlements involving the product.
Commercial property insurance protects the building that your company owns or rents, as well as the equipment (including computers), machinery, furniture, inventory, building fixtures, landscaping, and tools in the building. It covers losses from natural disasters, such as fire, wind, and lightning, as well as from theft or vandalism. This coverage also protects you against lost income if you’re unable to operate your business due to property damage.
Most states require businesses to carry this coverage, which helps employees recover from work-related injuries or illnesses. Workers’ comp also protects businesses against the costs involved with such injuries, which can include medical bills, costs for ongoing care, lost wages, and even funeral expenses.
Any business that owns vehicles should carry commercial auto insurance, which is required in most states. This coverage protects against damages due to auto accidents involving your company’s vehicles. It covers medical payments, property damage, and legal expenses, in addition to loss or damage of vehicles by theft or vandalism.
Professionals with personal companies often need some form of malpractice insurance, which is essentially a type of professional liability coverage. While most people think of physicians when they hear the word “malpractice,” accountants, attorneys, financial advisors, and consultants may also need this type of insurance.
Other types of insurance your business might need include the following.
The cost of business insurance is dependent on several factors, including:
As of August 2022, Forbes reports the following average monthly costs for different types of business insurance.
Business insurance rates can vary significantly from one state to the next. Different states require different types of insurance, and the location factor plays heavily into the differences in costs between states. While cost information isn’t available for all states, take a look at the average costs of insurance for small businesses in the following states as of 2022:
Purchasing the right business insurance for your company is easy when you work through an insurance company such as Insurist. A licensed insurance agency can help you ascertain what types of coverage you actually need and pinpoint the best rates and options for you.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
I've worked for Safeco and Liberty Mutual as a sales agent and claims adjuster for the last five years. My claims experience is primarily auto insurance, but I am licensed to sell auto and property insurance (homeowners, condo, renters, long-term renter, etc) currently.
