Small Business Insurance Needs: What Coverages Might Your Business Want to Consider?

What Insurance Coverages Do Small Businesses Commonly Consider?

Many small businesses explore general liability insurance options and review property coverage, workers' compensation, and professional liability, commercial auto, or cyber insurance solutions depending on how they operate. Which policies may be appropriate depends on your industry, location, employees, contracts, and the risks you face. Some coverage may be required by law or by a client or landlord contract.

^{Insurance products are provided by insurance carriers. Acrisure acts as an intermediary that helps you access insurance solutions. Coverage availability, terms, conditions, limits, and exclusions vary by insurer, policy, state, and business risk profile. The descriptions below are general in nature and are not a substitute for reviewing the specific policy forms, endorsements, and applicable requirements with a licensed insurance professional. This article is for general informational purposes only. It is not legal or other professional advice.}

Why Do Small Businesses Consider Insurance?

Small business insurance can help protect your company against financial losses tied to certain covered events, which may include certain property damage, lawsuits, professional errors, cyber incidents, and other risks. Depending on your business, location, employees, and contracts, some types of insurance may also be required by law or by agreement.

Because businesses face different risks, different types of insurance policies should be explored. Evaluating your operations and exposures can help you decide which coverage options may be appropriate. Your business remains responsible for managing and reducing its own risks. Insurance is one part of an overall risk management strategy.

How Do I Assess My Small Business Insurance Needs?

Your coverage needs depend on several factors. Ask yourself:

• Does my company provide products, professional services, or both?
• Do customers or clients visit my business location?
• Do I own or lease commercial property, equipment, or inventory?
• Do I have employees?
• Do employees drive vehicles for business purposes?
• Does my business store sensitive customer or payment information?
• Could a professional mistake cause a client financial harm?
• Could a product my business sells or manufactures cause injury or property damage?
• Could my business keep operating after significant property damage or another covered interruption?
• Have I added employees, locations, vehicles, equipment, products, or services since I last reviewed my coverage?

Your answers can help you identify the risks you face and the types of coverage worth discussing with an insurance professional.

Which Small Business Insurance Coverage Fits Which Situation?

Here is a general overview of how common business situations may relate to coverage types. Coverage terms, exclusions, and limits vary by carrier and policy, so reviewing the actual policy language with a licensed insurance professional before you buy is an important consideration.

Customers or clients visit your location, or your work could injure someone or damage their property: Consider commercial general liability, which generally addresses certain covered third-party bodily injury and property damage claims.

You own or lease space, equipment, or inventory: Consider commercial property coverage, often included in a business owner's policy. It generally addresses damage to or loss of business property from covered events.

You want property and liability coverage packaged together: Consider a business owner's policy (BOP), which generally bundles property, general liability, and sometimes business interruption coverage.

You have employees: Consider workers' compensation, which generally helps cover medical costs and lost wages for covered work-related injuries or illnesses.

You give advice or deliver services: Consider professional liability (errors and omissions), which generally addresses certain covered claims alleging negligence, errors, or omissions in your professional services.

You use vehicles for business: Consider commercial auto, which generally addresses certain covered vehicle damage and auto-related liability.

You make or sell products: Consider product liability, which generally addresses certain covered claims that a product caused injury or damage.

You store customer data or accept card payments: Consider cyber insurance, which may help with certain costs from data breaches and cyber incidents.

You want higher liability limits: Consider commercial umbrella insurance, which can provide additional liability limits above certain underlying policies.

Common Types of Small Business Insurance

Depending on the business type and risk exposure, various coverage types might be explored. Here are some of the common types to consider.

Commercial General Liability Insurance

Commercial general liability (CGL) insurance generally helps protect a business against certain covered claims of bodily injury or property damage to people who are not employees. It can also respond to certain covered claims involving your products, services, or operations, subject to policy terms. If you are sued over a covered claim, the policy may help pay for legal defense and covered damages.

General liability policies have exclusions. Common examples include damage to your own work or products, professional services, and expected or intended damage. Professional errors usually fall under professional liability instead, so many businesses review both.

A licensed insurance professional can help you consider what limits may suit your business type and operations.

Business Owner's Policy (BOP)

A business owner's policy is a package designed for many small businesses. It typically combines commercial property insurance and commercial general liability insurance. Depending on the policy, it may also include business interruption coverage, which can help with certain lost income and extra expenses if a covered event temporarily disrupts operations.

Businesses that qualify for a BOP are generally small to mid-sized and meet carrier eligibility rules, which vary by industry, size, and risk. Bundling can be simpler than buying each policy separately, and carriers may price packages differently than individual policies. Acrisure can help you explore BOP options that may fit your business.

A BOP may be a starting point for some businesses. Businesses with multiple locations, more complex operations, or larger exposures may want to consider coverages placed individually (see "Considerations for Growing Businesses With a BOP" below).

Workers' Compensation Insurance

If your small business has employees, workers' compensation may be an important part of your coverage program and may be required under state law. It generally provides benefits for employees who have work-related injuries or illnesses, including certain medical expenses and lost wages.

Requirements vary by state and by business circumstances, including the number of employees and how workers are classified. Employers may want to review the rules where they operate with a qualified professional and consider whether their coverage reflects their workforce.

Professional Liability Insurance (Errors and Omissions)

Professional liability insurance, also called errors and omissions (E&O) insurance, can help protect a business against certain covered claims alleging negligence, errors, omissions, or other failures in providing professional services.

For general illustration only, a client might allege that an error in a firm’s professional services caused the client a financial loss. Whether any coverage applies depends on the specific facts and on the policy’s terms, conditions, and exclusions. Where a claim is covered, professional liability coverage may help with legal defense costs and covered damages.

The same idea applies in other industries, including consulting, marketing, technology, accounting, and design. Some client contracts may also require proof of professional liability coverage.

Many professional liability policies are written on a claims-made basis, which means coverage generally depends on when the claim is made and when the policy is in force. If you change or cancel a policy, ask about the retroactive date (the earliest date for which past work is covered) and extended reporting ("tail") coverage, which can extend the time you have to report claims after a policy ends.

Commercial Auto Insurance

If your company owns vehicles or employees drive for business, such as delivering goods, transporting people, or visiting job sites, commercial auto insurance may be an important coverage to consider. It generally addresses physical damage to covered vehicles and vehicle-related liability.

Personal auto policies often limit or exclude business use, so check how your vehicles are used. An insurance professional can help you consider limits based on your business, drivers, and the number of vehicles in your fleet.

Product Liability Insurance

If you make, sell, or distribute products, product liability insurance may be important. It generally helps address certain covered claims that a product caused injury or property damage. Claims can also arise from how a product is marketed or used.

Coverage depends on policy terms, exclusions, and your products. It is typically provided as a part of general liability coverage.

Cyber Insurance

Data breaches are often reported for large companies, but small businesses can be targets too. Depending on the type of incident, losses can include investigation, notification, data restoration, business interruption, and legal costs.

Cyber insurance may help with certain costs arising from covered incidents. It may be a consideration if you store customer information, accept card payments, or rely on connected systems. Coverage for ransomware payments, wire transfer fraud or social engineering, and technology errors and omissions can vary significantly by policy and may require specific endorsements.

Insurance is not a substitute for good security practices. Internal controls, employee training, and cybersecurity services can help reduce your exposure and may also affect what coverage is available.

Commercial Umbrella Insurance

Commercial umbrella insurance can provide additional liability limits above certain underlying policies, subject to its terms and conditions. It sits on top of underlying liability coverage, such as general liability, commercial auto, or employer's liability.

An umbrella policy may be a consideration if you work in complex work environments, sign contracts requiring higher limits, or are concerned about exhausting the limits of your other policies.

How Might a Small Business Prioritize Coverage?

Consider evaluating your insurance needs based on the likelihood and potential severity of risks associated with your business, as well as any applicable legal or contractual insurance requirements.

1. Required coverage. Consider by identifying any insurance coverage required by applicable law  (for example, workers' compensation in many states), your lease, or client contracts.
    
2. Liability. Claims involving injuries, property damage, or professional errors can be costly.  Depending on your business operations, general liability or professional liability insurance may be important considerations.
    
3. Property and operations. If losing your location, equipment, or inventory would significantly disrupt your operations, property and business interruption coverage may be worth considering.
    
4. Risks specific to your business. Depending on your operations and exposures, additional coverage options, such as cyber, commercial, auto or product liability insurance may be relevant.

A licensed insurance professional can help you weigh these considerations and explore available coverage options based on your specific circumstances.

Startups and Brand-New Businesses

If you are forming a limited liability company (LLC) or launching a new business, you may want to consider obtaining insurance before revenue starts. A landlord, client, or lender may require proof of coverage, and liability risks can exist from the first day you operate. While forming an LLC may limit some personal liability, it generally does not prevent your business from being sued or protect its property; an attorney can advise on your specific situation.

Many new small business owners begin with general liability or a BOP, then add coverage as they hire, sign contracts, or expand. Share your plans with a licensed insurance professional, who can help you explore coverage options suited to how your business will operate.

What Factors May Affect the Cost of Small Business Insurance?

The cost of small business insurance varies because companies have different risk profiles, and insurance carriers set their own pricing. 

The following factors are commonly used to determine premiums, among others:

• Industry and type of business
• Business location
• Number of employees and payroll
• Annual revenue
• Claims history
• Types of coverage selected
• Policy limits and deductibles
• Property, equipment, or vehicles being insured

Because pricing depends on these and other factors, comparing personalized quotes may give you a clearer picture of what coverage may cost for your business. When comparing quotes, it may be helpful to review coverage terms, limits, deductibles, and exclusions, not only the premium, since a lower quote may not include coverage you may want to consider.

BOP Considerations for Growing Businesses

BOP insurance may be a good fit for some businesses in their early stages. As a business grows, it may be helpful to review whether a packaged policy continues to suit its operations.

Factors that may prompt a review of individually placed or specialized coverage options can include:

• Multiple locations or significant property values
• Specialized operations, such as contracting, transportation, or manufacturing
• Contracts that require higher limits or specific endorsements
• A growing professional services practice
• Larger payroll, new states, or more vehicles
• New products, technology, or customer data

Many businesses review their coverage periodically, such as at renewal and when their operations change.

Considerations When Choosing a Business Insurance Broker

Insurance carriers underwrite and issue policies and pay covered claims, subject to the policy’s terms and conditions. An insurance broker generally works with multiple insurance carriers to help you evaluate coverage options and may assist with placing and managing your insurance program.

When choosing a commercial insurance broker, you may want to consider:

• Industry experience. Consider asking about their experience with businesses in your industry and the types of contracts common to it.
• Access to options. Consider asking which insurance carriers they work with for the types of coverage you are evaluating.
• Licensing. You may want to confirm that they are licensed in your state. You may also want to review the financial strength ratings of the insurance carriers they work with.
• Scope of service. Consider asking whether they can assist with multiple lines of coverage (such as liability, property, and workers' compensation), as well as with claims support, certificates of insurance, and renewals.
• Clarity. Consider whether they explain exclusions, limits, and deductibles in straightforward language.

Acrisure acts as an insurance broker and works with multiple insurance carriers to help businesses navigate available insurance options. Acrisure's advisors work with business owners across industries to help understand their operations and goals and explore potential insurance solutions. Working with a broker and purchasing directly from an insurance carrier each involve different considerations, so you may want to ask how each approach would address coverage options, advice, and ongoing service.

Business Type Coverage Considerations

Insurance needs vary from business to business, and coverage that is a good fit for one company may not be the best fit for another. For example, a retailer with a storefront typically has different exposures than a consultant working from home, and a contractor with employees and company vehicles may consider a different mix of policies.

Factors that may affect your coverage considerations include your industry, property, employees, vehicles, products, professional services, customer data, contractual obligations, and liability exposures. Changes such as hiring employees, opening another location, buying equipment, adding vehicles, or launching new products or services can also affect those considerations, so periodic review may be helpful. A licensed insurance professional can help you evaluate these factors and compare available coverage options.

Exploring Coverage Options for Your Small Business

Small business insurance needs vary by industry, operations, employees, property, and risk exposures. As your company changes, periodically reviewing your coverage with a licensed insurance professional can help you evaluate whether your insurance program continues to reflect your business.

Acrisure can help you evaluate available coverage options and explore potential insurance solutions for your business. Contact us to learn more or to request a small business insurance quote.

Frequently Asked Questions

Is general liability the same as professional liability?

General liability generally addresses certain covered third-party bodily injury and property damage claims. Professional liability generally addresses certain covered claims arising from errors, omissions, or alleged negligence in the provision of professional services. Many professional services businesses consider both.

Does a BOP include other types of coverage?

A business owners policy (BOP insurance) typically bundles property and general liability coverage. Depending on the insurer and policy, additional coverages may be available through endorsements or other policy options. Workers' compensation, commercial auto, professional liability, and cyber insurance coverage are generally obtained separately.

Is workers' compensation required if a business has only part-time employees or one employee?

Workers' compensation requirements vary by state and by how workers are classified. A licensed insurance professional or attorney can help you understand how your state’s rules may apply to your situation.

What does "claims-made" mean?

A claims-made policy generally covers claims first made while the policy is in effect, often subject to a retroactive date. Ask about extended reporting coverage if you change carriers or cancel the policy.

How often do businesses typically review their coverage?

Many businesses consider reviewing business insurance coverage at least annually, and whenever they add employees, locations, vehicles, equipment, products, or services.