Small Business Insurance

Commercial insurance policies function just like your personal insurance: A business can purchase coverage to protect itself from financial harm when something unplanned occurs. Different policies cover different risks a business faces. Much like personal insurance, the business pays an insurance premium to maintain coverage, can adjust coverage up or down if needed, and can file a claim to be paid out by the insurer.

Small business insurance is no different from other commercial insurance products, except that it’s right-sized for the amount of exposure a small business might have. Lesser exposure means lower limits, and therefore, lower premiums. So essentially, the difference between small business insurance and commercial insurance is cost and the amount of coverage you’ll need.

Insurance companies that specialize in small business insurance may be able to offer faster and simpler processes than traditional insurance companies. This streamlined and hassle-free experience can also translate into lower costs for its customers.

How Small is Small?

It depends who you ask. For most industries, the U.S. Small Business Administration defines a small business as making less than $7.5 million in annual receipts (or revenue). More often, it’s based on the number of employees—fewer than 250.

Small Business Insurance Carriers

A commercial insurance carrier provides the actual insurance product, whereas an insurance agent or broker does not. An agency handles the account management and collects information for underwriting, but does not ultimately underwrite the policy or pay out claims.

When buying small business insurance, you likely have a number of licensed carriers that you can shop around. Some carriers, like The Hartford and Pie Insurance, specialize in small business insurance. Other leading carriers, like CNA, AmTrust and Travelers, can provide coverage for businesses of all sizes. Small business policies generally have lower limits and lower premiums than enterprise-sized policies, and may be less complex.

Common Small Business Liabilities

The types of insurance policies your small business requires depends on the exposures your business faces, how costly they are, and how likely they are to occur. Consider the following categories and how they relate to your business:

Real Estate

Do you or employees work in an office or retail space? Any property or real estate associated with your business will need coverage.


Think about all the tools, equipment and software you use to operate your business. This includes everything from heavy machinery at a warehouse to a freelancer’s personal computer.

Products and Inventory

Of course, you’ll want to protect what you sell, but also consider your suppliers and the ability to obtain your product or the materials needed to produce it.



Unfortunately, businesses of all sizes are at risk of a data breach or cyber attack. Not only could this potentially expose sensitive information, but your business could also face fees as a result.

Employees, Vendors and Contractors

If you have employees, there’s a good chance you’ll need to provide coverage. You’ll also need to consider protection for vendors, contractors, or anyone else who might work with your business.

If loss, damage or destruction related to any of the above poses a significant financial risk to your business, consider finding an insurance product to address it.

Legal Insurance Requirements

What insurance do small businesses need to carry?

Nearly all small businesses should carry two insurance policies: general liability insurance and workers’ compensation insurance. However, the only legally required insurance for small businesses is workers’ compensation. Check the state where your business operates to see if they require workers’ compensation coverage.

Read more about these, and other small business insurance policies below.

Commercial Small Business Policies

Your business size, operations, location and assets will determine what other policies might apply. Common commercial policies for small businesses include:

Business Owners Policy

A Business Owners Policy (BOP) is a common bundle of commercial insurance products. It typically bundles general liability and commercial property, but may include other coverages as well.

Commercial Auto

A commercial auto policy covers any company-owned and operated vehicles, much like your personal car insurance.

Commercial Property

Protect equipment, inventory and furniture in the event of a theft, fire or other damage. For home-based businesses, this policy would cover any business equipment that would not be protected by a homeowners or renters policy.

Also included in commercial property policies is business interruption coverage. Also referred to as loss of earning protection, it covers the loss of revenue a business suffers from an interruption, whether shutting down operations during a disaster, or recovering and rebuilding afterward.

Commercial Umbrella Insurance

All commercial policies have coverage limits. If the cost of a claim exceeds the policy limits, a commercial umbrella policy will kick in. The umbrella policy extends additional liability limits to protect business assets.

Disability Insurance

Protect yourself and your family with disability insurance, which covers lost earnings if the insured becomes unable to work (temporarily or permanently, depending on the policy).

General Liability

General liability insurance covers damage to property or people as a result of the business’s products, services or operations. Specifically, it covers legal fees and damages or settlements of business-related lawsuits. Whether you work from home as a freelance writer or you’re a growing small business with employees, general liability is recommended.

Professional Liability

Also known as errors and omissions (E&O) insurance, professional liability insurance protects against any damage that results from mistakes or improperly delivered professional services. If the work performed by the business is done incorrectly or causes harm, professional liability would help cover legal representation and settlements. It’s a common commercial policy, especially for professional offices.

Just like general liability, professional liability insurance is good to have, even as a work-from-home entrepreneur.

Life Insurance

A business owner brings essential skills, knowledge and leadership to the company, particularly if it’s a small business. By purchasing life insurance for the business owner, the policy could help pay off debts and support surviving loved ones while they determine what to do with the business. Similarly, key person insurance would pay other business owners or partners, to provide additional revenue and keep business afloat after the owner passes.

Workers’ Compensation

Workers’ comp covers the costs of employee injuries, while limiting employer liability. If an employee is injured or becomes ill in the course of their work, work comp could pay for medical expenses, rehabilitation, wage replacement and legal fees.


How to Buy Small Business Insurance

If you need an insurance policy, here’s how to get coverage for your business in three simple steps.

1. Find a Licensed Insurance Provider.

An insurance carrier, broker or agency that sells commercial policies can all serve your business.

  • Insurance carrier: Carriers actually provide the insurance coverage, and in the event of the claim, would administer the process and pay out the claim.
  • Insurance agency or broker: An agency may represent one carrier exclusively, and handle administrative tasks, recommend plans and help settle claims. An independent agent represents several carriers, and can shop around for the best price.

For workers’ compensation insurance, you may also have the option of a state fund or assigned risk pool.

2. Request an Insurance Quote.

Any traditional insurance agencies and carriers require you to call or meet in person to review your information, ask follow-up questions and submit your information to the carrier’s underwriters. (Underwriters, in short, determine whether the carrier can cover your business, and how much your premium will cost.)

New insurtech companies use technology to provide a more convenient, digital-first experience, so you can get a quote online and on your schedule. With lower overhead and fewer administrative costs, some insurers can pass these savings on to the consumer.

3. Pay and Bind.

Upon receiving a quote, you can choose to pay and bind, or continue shopping around. Before selecting a carrier, consider:

  • Lines of insurance offered: Does the insurer sell the policy or policies you’re buying? Look for providers that are experts in the coverage you need, so they can steer you toward a right-sized and fairly priced policy.
  • Licensing: Certain policies, like workers’ compensation, are licensed at a state level. Make sure both the agency and carrier you choose are licensed in any states your business operates in—otherwise, you’ll need to seek coverage elsewhere in these markets.
  • Financial rating: Is the company highly rated for financial strength? Find out if the carrier has an A rating from A.M. Best, one of the most widely recognized ratings for the insurance industry.
  • Ratings and reviews: Does it have positive ratings or reviews? Also look at customer testimonials, years in operation and number of customers they serve.
  • Customer service: Does the company make the quoting process easy? Does it give you flexibility for managing your policy, and offer helpful advice? Easy, straightforward service matters, particularly for busy small business owners.
  • Payment terms and options: Some insurers offer different payment options, such as annually, quarterly, monthly or even pay-as-you-go. Consider whether this flexibility is important to you.

Some insurance carriers may not bind coverage until you have made the first payment, while others will issue a policy and send an invoice for payment.

Small Business Insurance Costs

entrepreneur-officeCommercial insurance premiums can vary widely from one small business to another. The largest factors driving cost are:

  • How much risk is inherent in the work or nature of your business?
  • How much is at risk, and what are the potential losses or costs?
  • Is the business obligated to carry or provide this policy?

Small business policies tend to cost less because the amount of liability is lower. Compared to large enterprises, small businesses have less potential loss of revenue, fewer assets, small workforces, etc. However, small businesses also have less negotiating power with carriers, or in the case of larger organizations, the ability to self-insure.

The traditional insurance model has largely overlooked small businesses. Because insurance agencies make a commission on the premium amount, agents have little incentive to write very small businesses. Instead, an insurer that specializes in small business may be able to write what traditional agencies can’t, and provide better rates than traditional agencies.

Tips for Small Business Insurance Shopping

Making the right insurance decisions for your business starts with shopping smart and planning ahead. The following tips can help make it easier to shop for small business insurance while also potentially saving you money in the process.

Buy the right amount of coverage.

First and foremost, ask yourself which, if any, insurance policies you’re legally or contractually required to carry. Remember, most states require businesses to provide workers’ compensation insurance, but there are also policies you can do without.

You also may end up working with a contractor or vendor who contractually requires you carry a policy. Find out what typical policies and limits are for a business like yours. Under-insuring your business could be even more costly than over-insuring.

Read the fine print.

Read specifically what is and is not covered by the policy. Read limits and terms of the policy, and if you don’t understand something, ask your insurance agent to walk you through it. Furthermore, review your policy annually to make sure what’s covered still suits your needs. You may want to alter policy details, such as opting for a higher deductible or lower policy limits.

Shop around for policies.

Compare policies to find the right coverage at a fair price. Request a quote from multiple carriers, or work with an independent agent. Independent insurance agencies represent multiple carriers, which means they can shop around your quote and bring back the best option for you. Better yet, find an independent agent that specializes in small business insurance.

Be sure to ask your agent about carrier discounts and other cost-saving measures such as loss-prevention programs and group rates.

Consider bundling policies.

Bundling together several insurance products can help you save money. A BOP, for example, is a common way to do this, as you can typically combine policies at a lower price than purchasing separately.

Plan ahead.

Being proactive is crucial to the overall health of your business, and it’s a great way to save money on your insurance policies.. From implementing safety programs to protecting your most important digital assets, ask your agent what you can do now to protect your business in the future.