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Small Business Insurance: 11 Types of Coverage to Consider

August 3, 2022
Phil Cohen

The Complete Guide to Small Business Insurance 

Regardless of how smoothly, ethically, or carefully a business is being run, something is going to go wrong at some point. Whether it be property damage, a liability claim or a natural disaster, it makes sense and pays off to have small business insurance.

Having business insurance is important because if your company encounters a problem, which it eventually will, the insurance will help pay for certain damages and issues. Insurance provides a saving grace for businesses during rough times.

For example — Two small businesses are in the wake of a tropical storm. One company has business insurance and the other does not. The business with insurance receives capital for flood and wind damage, which helps offset unexpected costs and keeps the company afloat. The business without insurance has to pay for all damages out of pocket, causing them to go into debt and close their doors. 

With this in mind, the many forms of small business insurance available today can become confusing and overwhelming. Here are the most important forms of insurance a small business owner should consider buying.

Goods and Services Insurance

Professional Liability Insurance

Professional liability insurance, more commonly known as errors and omissions insurance, protects small businesses against lawsuits that could arise if a company’s client gets harmed by the company’s service.

For example, a doctor or lawyer could be sued for malpractice. However, they can gain protection from the potential case by paying their professional liability insurance’s monthly premiums.

Premiums will almost always be worth paying. Compared to the court costs of a lawsuit, monthly premium costs are a drop in the bucket. Professional liability insurance is a useful way for small businesses to protect themselves from a serious potential loss.

Product Liability Insurance

While professional liability insurance protects businesses from being sued for things they do, product liability insurance protects businesses from being sued against things that they make. This form of small business insurance is very important for companies that produce or sell a product, as it will ensure that they do not sustain large monetary losses from a product that hurts a customer.

For example, a shelf manufacturer might get sued if the shelf they made breaks and damages the products that were on it. A product liability insurance plan will protect that company from going bankrupt in a lawsuit filed against them and will also make sure that the person whose belongings were broken gets repaid. For any company that provides any sort of item, product liability insurance is an essential form of business coverage.

Directors and Officers Insurance

The actions of company executives can have a massively negative effect on a business or organization. Director’s and Officer’s insurance is a form of small business insurance that protects the personal assets of the previously mentioned from being taken in a lawsuit that’s related to company decisions they make. Small business owners should invest in this type of insurance to protect themselves from personal liability toward their company.

Worker’s Compensation Insurance

Although workplace injuries are most commonly thought of as a blue-collar industry only occurrence, the reality is that they can occur in even the most sedentary of offices. Consequently, the vast majority of businesses are required to insure themselves against potential workplace damages.

Worker’s compensation insurance, or “worker’s comp,” pays employees for injuries that they sustained while at work.  Because medical care can be extremely costly, having this form of small business insurance on the company plan is always a good thing, even when it may not be legally required. This is undoubtedly one of the most important forms of damage protection for small businesses– it not only ensures that the business won’t go bankrupt paying for injuries but also gives some assurance to the employees that they will not go without medical treatment if they do suffer from an accident at work.

Home-Based Business Insurance

While it is not a necessary form of small business insurance for all companies, home-based business insurance should be seriously considered for anyone who operates out of their home instead of from an office. Even people that buy insurance on their house as non-commercial residents must also purchase a plan to ensure that their business is not excluded when their home takes damage.  In this way, home-based business insurance can definitely become pricey but is necessary for anyone whose home is also their office and is a good form of damage protection for small businesses that do not have a separate office space.

Property Insurance

Just as many Americans choose to take out insurance on their house so that they aren’t doomed if something happens to it, businesses often buy a property insurance plan for their property so that they don’t go bankrupt if things get destroyed. This type of small business insurance can be the difference between survival and dissolution for a business that might have to spend a significant chunk of its monetary holdings on repairing or buying new property.

Although property insurance can be a necessary small business insurance option for when things suddenly go bad, natural disasters and other events that decimate populations on a large scale are usually not covered by property insurance and must often be part of a separate plan.

Vehicle Insurance

Having car insurance as a non-commercial driver is essential so that damages to the driver and others in accidents are insured. Vehicle insurance is just as necessary when used as a form of small business liability protection.

Any vehicle that is being driven by an employee of a business should be covered under the company’s insurance plan. Considering how expensive car accidents can be when not covered by insurance, any business owner looking for a way to protect him or herself from surprise bankruptcy should have ample auto coverage. This extra business liability insurance is a great way to ensure that all bases are covered.

Business Interruption Insurance

In many situations, a business does not just lose the money that it must use to replace its property when it sustains damages – rather, the business also suffers from lost income that it would have made had the property not been damaged in the first place. As a result, one small business liability insurance option that can be advantageous to risk-averse businesses is business interruption insurance.

This protects businesses from losing the opportunity to make money during the time that they are not up and running due to some unforeseen event. Although it is secondary to more essential policies like property and worker’s comp insurance, this form of business insurance can be a life-saver to companies that simply cannot afford to stop operating for an extended period of time due to various expenses.

Data Breach Insurance

Because many businesses are in possession of very sensitive material regarding their clients, the hacking or leaking of company data can be a catastrophic event. As a result, insurance companies offer a business insurance option known as “data breach insurance.” The money that the insurance company provides the company is useful for multiple reasons, including recovery efforts and the lawsuits that might result from such public exposure of confidential info. This type of small business insurance is a must for any business holding info that would be seen as desirable by cybercriminals or attackers.

Blanket Insurance

Business Owner’s Insurance

Because buying insurance for a small business can be so complicated and involves the purchase of multiple different plans, some insurance companies offer plans that combine property insurance with liability insurance. These small business insurance plans are known as “business owner’s insurance policies” and allow companies to have an overarching plan that covers multiple aspects of their business at once. This plan is great for people who want a small business insurance policy that is simple and oriented towards small businesses specifically.

Umbrella Insurance

No, this is not an insurance policy that sponsors corporate umbrellas or makes sure that you have one when it’s raining – umbrella insurance policies for small businesses are plans that cover everything else not insured by the previously mentioned policies that might keep business owners up at night. These policies are great for making sure that there is no chink in the armor. For owners looking at insurance policies for small businesses that will not leave them open to paying out-of-pocket/company money for lawsuits, the umbrella insurance options offered at some insurance companies are a good way to go.

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Keeping Risk at a Distance

Just like every person in their life is on one side or the other of a lawsuit, almost nothing can be done from preventing bad luck from blindsiding a business at some point. Having the right insurance coverage will keep the business safe from serious damage when bad things occur and are absolutely essential in ensuring the preservation of the company.

If your business is having trouble paying insurance premiums or covering other costs of operation that are necessary for the company’s survival, factoring your business invoices can help get you the cash that you need right now. Call Factor Finders today to learn more about getting the money that your business needs to function as soon as possible.

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