Types of business insurance

Businesses face many risks. From physical damage to lost revenue to personal injury court cases, it’s important to have insurance that covers direct damage and liability, as well as provides protection for employees. Here’s a closer look at the different types of business insurance so you can decide which is best for your company.

Note: As business insurance regulations vary by state, always consult with a licensed insurance agent and check the business insurance requirements in your state of operation to ensure your bases are covered. Not having the correct insurance plans in place could lead to severe financial and personal repercussions.

Common types of business insurance

Your business can buy a range of insurance to protect against both general and specific types of losses. Whether you’re starting a new business or you’re buying an established business, these are the most important coverages to consider:

Business owner’s policy

A business owner’s policy (BOP) is a type of policy that typically includes three or four key business insurance coverages that business owners may want to bundle together. BOP policies are typically more cost-effective than buying three separate policies. If you’re starting a new business, this may be a good place to start. BOP’s generally include:

• General liability insurance (GLI). GLI is designed to cover medical expenses, bodily injury and property damages involving non-employees.
• Commercial property insurance. This insurance covers losses to your physical business and its contents, such as equipment, inventory and furniture.
• ​​Business interruption insurance. A type of insurance that replaces business income lost in a natural disaster, such as a fire or flood.
• Crime insurance. This helps protect your business from fraud, theft and forgery, although not all lenders include this in their BOP policies.

In some cases, your business may be ineligible for a BOP policy, which means you’ll be left to purchase coverage separately. The following sections describe each of these coverages in more detail.

General liability insurance

General Liability Insurance (GLI), also known as “slip and fall” insurance, is one of the most fundamental coverages your business can carry. It’s designed to protect your business from loss in the event of personal injury, bodily injury, property damage or other accidents involving people outside of your company, including customers and vendors.

While not usually required by law, there are many situations where you may want to buy it, for example, when starting a business or signing an office lease. It’s often combined with commercial property insurance in a business owner’s policy (BOP), but it can also be purchased as a standalone coverage.

• Who it’s best for: Business owners and contractors.
• What it protects: Bodily injury, personal injury and property damage.
• Costs it covers: Legal fees, settlement costs, medical expenses for injured parties.

Business liability insurance

Business liability insurance is a broad term, encompassing additional types of liability insurance beyond what is offered by GLI. In addition to general liability, types of business liability insurance might include professional liability insurance, product liability insurance, employment practices liability insurance (EPLI), and more, depending on your business’s specific risk profile.

• Who it’s best for: Small businesses, partnerships, sole proprietorships and limited liability corporations (LLCs).
• What it protects: Lawsuits relating to claims of negligence, errors, malpractice and more.
• Costs it covers: Any direct financial liabilities incurred, as well as any legal defense expenses.

Business income insurance

Business income insurance is designed to protect your business from lost income if your business is unable to operate due to events like fires, storms or theft. It can even cover costs like your rent or lease payments, employee wages, business taxes and other ongoing expenses. You may find that the terms business income insurance and business interruption insurance are used interchangeably, but insurers typically offer one or the other since they are so similar.

• Who it’s best for: Businesses that could suffer financial loss from a temporary shutdown.
• What it protects: Lost income and ongoing expenses if your business is unable to operate due to covered events.
• Costs it covers: Lost income.

Business interruption insurance

Like business income insurance, business interruption insurance is designed to pay for losses due to a shutdown – but in this case, it covers losses related to your buildings, office equipment and inventory. It can also pay for temporary or permanent relocation if you can’t resume operations at your current location.

• Who it’s best for: Businesses that could suffer financial loss from a temporary shutdown.
• What it protects: Lost income if you’re unable to operate due to an insured interruption.
• Costs it covers: Lost income.

Are business income insurance and business interruption insurance the same thing?

Business income coverage is typically the same thing as business interruption coverage and the terms are often used interchangeably, even by the National Association of Insurance Commissioners (NAIC). However, different insurance companies generally offer one policy or the other, each with very similar coverage.

Commercial property insurance

Commercial property insurance, also known as business property insurance, is designed to protect your company’s real estate and physical assets from threats such as vandalism, fire, storms, burst pipes and theft. However, it generally doesn’t cover wear and tear, products in transit, intentional damages and liability. And it typically doesn’t cover floods and earthquakes – you’ll need to buy separate cover for these events.

• Who it’s best for: Businesses that have buildings and physical assets to protect.
• What it protects: Building, fixtures, equipment, supplies, inventory, and other types of tangible property.
• Costs it covers: Replacement costs or repair of damaged property.

Commercial umbrella insurance

Commercial umbrella insurance extends coverage for any liability coverage you have if a claim goes beyond your policy’s limits. Its purpose is to complement your existing liability coverages, such as general liability insurance, by providing extra cover when your other policies limits have been reached. Otherwise, you’d have to pay out of pocket for costs over your current liability limits.

• Who it’s best for: Businesses that want an extra layer of liability protection.
• What it protects: Varies, may cover property damage and liability.
• Costs it covers: Varies, may cover costs of damaged property, legal fees and settlements.

Commercial auto insurance

Commercial auto insurance covers vehicles used for business purposes, including cars, trucks, and vans. It provides financial protection for vehicle damages, driver injuries and more depending on the type of policy you choose. While similar to personal auto insurance, commercial auto insurance is designed to provide higher coverage limits than personal policies. Most states require this type of coverage if your business uses company vehicles.

• Who it’s best for: Businesses that own or lease vehicles.
• What it protects: Vehicles driven for business purposes.
• Costs it covers: Repair costs, medical bills, settlements and legal fees.

Cyber insurance

Business cyber insurance, also known as cyber liability insurance, is an important type of insurance coverage that helps protect businesses that store or process sensitive information. It’s designed to cover losses affecting IT infrastructure and may also provide third-party coverage for damages if customers or partners are affected by a cyber attack, covering legal fees, settlement costs, security failure and media liabilities.

• Who it’s best for: Companies that store or process sensitive information.
• What it protects: Cyber attacks and data breachers.
• Costs it covers: Varies, may include costs to restore data or settle liability lawsuits.

Professional liability insurance

Professional liability insurance, also known as errors and omissions (E&O) insurance, is a type of coverage that protects businesses and professionals should claims of negligence or mistakes arise. This insurance is essential for professionals such as accountants, lawyers, architects, consultants, engineers, financial advisors, real estate agents and medical professionals.

• Who it’s best for: Those who risk being sued over negligence.
• What it protects: Lawsuits related to negligence, errors or malpractice.
• Costs it covers: Legal fees and liability settlements.

Product liability insurance

Product liability insurance is a type of coverage designed to help businesses pay for third-party bodily injuries and property damages caused by faulty products. It covers the cost of claims and lawsuits and can help businesses meet insurance requirements placed upon them externally. This insurance is critical if your business makes, distributes or sells products, as it pays for legal costs if a person suffers injuries or damage caused by your products.

• Who it’s best for: Businesses that manufacture, distribute or sell products.
• What it protects: Lawsuits and settlements related to products.
• Costs it covers: Legal fees and liability settlements.

Workers compensation insurance

If you have or plan to hire employees, workers’ compensation insurance provides medical and wage benefits to employees injured on the job. It covers medical expenses, lost wages and costs to employees who are injured, die or become ill in the course and scope of their job. It sometimes covers employers for lawsuits by workers injured while working. It’s mandated by each state, with wage and medical benefits varying by state. Check with your state’s workers’ compensation department website to find out which coverages are legally required.

• Who it’s best for: Business owners with one or more employees.
• What it protects: Employees who are injured or killed on the job.
• Costs it covers: Medical expenses, lost wages, ongoing care, disability and death benefits.

Compare business insurance products

Narrow down top insurance policies by workers comp, general liability and more to find the best for your budget and financial goals. Select Compare for up to four products to see their benefits side by side.

Other types of business insurance

While less common, these types of specialized insurance can help cover specific situations related to your industry or profession.

• Builders risk insurance. Specialized property insurance to protect buildings and structures under construction from natural weather events, theft and vandalism.
• Business loan protection. If you’ve taken out a business loan or startup loan, this type of insurance can help repay your loans if you’re too sick or have an injury that keeps you from working.
• Data breach insurance. A type of cybersecurity insurance that provides coverage if your company’s digital assets are stolen or compromised.
• Directors and officers insurance. Insurance to protect those who serve as directors or officers of a company from personal loss if they are sued.
• Employment benefits liability insurance. Insurance to protect employers from errors or omissions in the administration of employee benefit programs.
• Employment practices liability insurance. A specialized insurance to cover loss from wrongful employment practices liability claims.
• Home-based business insurance. Coverage to protect home business owners, including general liability, commercial auto, professional liability and worker’s compensation.
• Inland-marine insurance. Insurance to cover products, materials and equipment during transport over land (not water) and while in storage by a third-party warehouse.
• Key man insurance. A life insurance policy purchased by a company to cover an individual considered critical to a business, like a CEO or top executive.

How to choose the right business insurance plan

When choosing a business insurance plan, you need to consider the specific needs of your company.

Here are some tips for choosing the right type of business insurance:

1. Assess your risks. What is the nature of your business and the potential risks you face? These may include physical damages, business interruption and loss of income, liabilities related to providing services or products, transportation and more.
2. Understand policy types. Know the difference between insurance plans – for example, general liability, commercial property, workers’ compensation – and what damages and liabilities they’re designed to cover.
3. Consult with a licensed insurance agent. An experienced, licensed insurance agent can help you select the appropriate policies for your business and advise you of plans that would be beneficial for your business and industry.
4. Get multiple quotes. Obtain quotes from several insurance providers so you can compare different options and costs, including standalone and bundled packages.
5. Review and update. Review your insurance plan as your business evolves and make adjustments as needed. For example, before you hire an employee, you will need to get workers’ compensation insurance.

What types of insurance are small business insurance requirements?

At a minimum, you should consider a business owner’s policy that includes general liability, commercial property and business interruption. You may also need commercial vehicle insurance if your business has cars or trucks, and workers’ compensation if you have employees.

Then, you could add other types of insurance based on the risks related to your business, for example, cyber insurance, if your business stores customer data, inland-marine insurance if you transport goods over land, or professional or product liability insurance if you provide services and/or products.

Note: As business insurance regulations vary by state, always consult with a licensed insurance agent and check the business insurance requirements in your state of operation to ensure your bases are covered. Not having the correct insurance in place could lead to severe financial and personal repercussions.

Steps to buying business insurance

These are the general steps to buying a business insurance policy:

1. Shop around to get quotes: Obtain quotes from multiple insurance providers, and review each quote thoroughly, comparing coverages and limits. Make sure coverage limits are adequate and that you can afford the deductibles.
2. Review your policies carefully before purchasing. Make sure your protection is appropriate and adequate. If you’re unsure, consult with a licensed insurance professional, a lawyer or a financial advisor to make sure your bases are covered.
3. Purchase a policy and keep it updated. Once you are satisfied that your policies cover all potential loss scenarios, ensure that your coverages are kept up to date as your business evolves.

Frequently asked questions

When do I need business insurance?

You need business insurance if some of all of these factors apply to your business:

• You employ people in your business
• Your business has a physical location
• Your company has cars or vehicles
• You have valuable assets and equipment
• You provide a physical service or product
• Your line of work leaves you open to legal action
• Your store-sensitive customer information or financial data
• Having a policy in place would give you peace of mind

The cost of starting a business can run high. Protecting what you’ve built with the right type of insurance can offer peace of mind and financial security.

Note: Other circumstances that require insurance may not be included in this list. Consult with a professional licensed insurance agent or lawyer if you’re unsure or have any questions about what your business needs to satisfy state and legal requirements.

Should I buy stand-alone business coverage or bundled?

The answer to this question depends on your needs. If you need just one or two types of business insurance, a standalone policy may work best. On the other hand, if your business faces a range of complex threats, a business insurance bundle could provide greater protection and be more cost-effective, especially if you can obtain bundle discounts.

What types of insurance should I offer my employees?

While only workers’ compensation, health insurance or state disability programs may be required, many employers go beyond these to attract high-quality employees. Benefits you might offer include dental, vision and life insurance, paid vacations, paid sick days, retirement plans and professional growth opportunities.