Business Insurance for Small Business Owners

If you’re starting a business, you must purchase the right insurance policy to protect yourself against risks and lawsuits that could pose significant financial burdens.

Your startup likely faces risks including injuries, lawsuits, and claims of professional mistakes, which is why the best business insurance policies provide coverage for various issues. While the type of business structure you choose, such as a limited liability company (LLC) or corporation status, can protect you and your personal property from lawsuits, that protection has limits.

Purchasing some form of business insurance can be legally required. For instance, it is legally required to purchase commercial auto insurance if your company uses vehicles, in every state except New Hampshire and Virginia.

The US federal government requires every business with employees to purchase workers’ compensation, unemployment, and disability insurance.

Read on to learn more about the types of coverage included in a typical business insurance policy, why you need them, and the average costs.

What is a Business Owners Policy (BOP)?

The best type of insurance to purchase when starting a business is a business owner’s policy (BOP). A BOP includes three different types of coverage—general liability insurance, commercial property insurance, and business interruption insurance.

All three of these insurance types are crucial for protecting yourself and your business, and purchasing them together under one policy typically makes it cheaper than buying each one separately.

General Liability Insurance

General liability insurance covers accidental property damage and accidental injuries to third parties and clients. For example, if a client who visits your office becomes injured by something falling off the wall or an object left on the floor, this type of insurance will cover their medical bills—and your legal costs if you get sued. General liability insurance would also cover damage to a client’s property if you were visiting them on business.

What general liability insurance usually doesn’t cover includes employee injuries, intentional injuries, vehicle accidents, and illegal or malicious attacks. If you have company cars and your business hires drivers, you will need to purchase a separate commercial auto insurance policy with liability coverage to pay for the costs of injuries and damages inflicted by your work vehicles.

General liability insurance also does not cover damage to your commercial property, which is why it’s also necessary to ensure you have commercial property insurance.

On its own, general liability insurance costs on average per year. The cost may depend on your business type, years of experience, location, insurance claims history and the amount of coverage the policy provides.

Commercial Property Insurance

Commercial property insurance covers the physical location of your business. If a pipe bursts in the office or a wildfire reaches your property, this insurance will cover the costs. It also protects you from the costs of threats like theft, vandalism, and severe weather. In addition to the building or structure itself, commercial property insurance also covers things like computers, furniture, tools, and your business’ inventory. Even if you rent your office space or equipment, you can still insure it through commercial property insurance.

Commercial property insurance generally falls into two categories—named perils policies and open perils policies. Named perils policies cover costs from hazards specifically listed in the policy, such as fire or theft, while open perils policies provide broader protections. Open perils policies typically have higher costs.

Generally, flooding caused by severe weather is not covered by commercial property insurance. If you’re concerned about flooding in your area, you may want to purchase a separate flood insurance policy.

The cost of commercial property insurance depends on the value of the property and the business assets, the location of the property, the construction of the building, your industry, and the property’s level of protection against fire and theft. On its own, commercial property insurance has an average cost of $800 per year.

Business Interruption Insurance

If you must temporarily close your business due to an issue like property damage or theft, business interruption insurance covers the costs of your lost income during this period.

It also covers other expenses associated with business interruption, such as the cost of temporarily renting a different office space, your monthly mortgage, loan payments, taxes, payroll, and training costs for employees to learn new equipment.

What business interruption insurance does not cover includes damage from floods or earthquakes (both require separate policies), income that’s not documented in your financial records, the cost of utilities, closure caused by communicable diseases, and the cost of repairing property (which is covered by commercial property insurance).

On its own, business interruption insurance generally costs between $480 and $1,560 per year. The cost is determined by factors including your industry, number of employees, location, risk of making a claim, and the amount of coverage you choose.

How Much Does a Business Owners Policy (BOP) Cost?

According to data from Insureon, a business owner’s policy costs on average about $57 per month. That’s about $684 per year.

Purchasing a business owner’s policy that combines general liability, commercial property, and business interruption insurance can be much cheaper than purchasing these three types of insurance separately.

When you’re buying business insurance, start by assessing your risks. Think about where your business is located, if it could likely be impacted by weather events, and what hazards your business may pose to potential clients or customers.

Then find a reputable agent. Insurance agents help you find the policies that match your business needs. Right here on our website, you can get a quote for business insurance from C&S Insurance.

Lastly, make sure you reassess your business’ insurance needs every year. As your business expands, your liabilities and risks may increase. Contact your insurance agent to discuss changes in your business and how they might impact your coverage needs.

Other Types of Insurance for Small Businesses and Startups

In addition to your BOP, you may need to purchase these other insurance policies:

• Commercial Auto Insurance – Necessary if you or your employee drives a vehicle for your company
• Commercial Umbrella Insurance – Provides extra coverage when you’ve met your liability limits
• Cyber Liability Insurance – Covers data breaches and other cyber threats
• Directors’ and Officers’ Insurance – Covers the employees who serve as your company’s directors and officers for lawsuits such as causing financial loss, mismanaged funds, intellectual property theft, copyright infringement, and misrepresentation of company assets
• Employment Practices Liability Insurance – Covers legal costs for claims of wrongful termination or violation of employee rights
• Errors and Omissions Insurance – E&O or professional liability insurance covers claims of professional mistakes
• Workers’ Compensation Insurance – Covers workplace injuries and illnesses
• Product Liability Insurance – Protects against financial loss because of a defective product that causes injury or bodily harm
• Home-based Business Insurance – Added to homeowner’s insurance for businesses that are run out of the owner’s home

Depending on your type of small business, be sure to research these different types of insurance and speak with a professional about what your business needs.

Learn more about the types of business insurance we offer at C&S.