Everything You Need to Know About Small Business Insurance

Proper insurance coverage protects your small business from unexpected circumstances and costs. Yet, according to the 2023 Hiscox Underinsurance Report, 75% of small businesses in the U.S. don’t have sufficient insurance coverage, which leaves small business owners liable for any potential claims.

To make sure you’re protected, here’s everything you need to know about small business insurance, including common coverage types and how to determine what’s best for your business.

Why does a small business need insurance?

Small business insurance protects your business from unexpected financial losses, including legal claims. For example, if a customer files a lawsuit because they got injured when they slipped and fell in your store, business insurance can cover the costs of the suit, including your legal defense.

Some industries require businesses to carry certain types of insurance. For example, most businesses offering advice should have professional liability insurance. In addition, many clients will require insurance to award a contract. Even if it’s not legally mandated, carrying small business insurance is the best protection against unplanned costs and circumstances.

“If you are already in business, the best time to get insurance is today,” said Stephen Prymas, Chief Underwriting Officer for Hiscox USA. “Every day you wait is another day you risk having something happen that you could have been covered for.”

Common types of small business insurance coverage

Most businesses will need multiple types of insurance to cover their risks and liabilities adequately. Here are some of the most common options:

• General liability insurance. Also known as small business liability insurance or commercial liability insurance, this policy covers the costs associated with claims made by others. This includes third-party claims of bodily injury, personal injury, and property damage.
• Professional liability insurance. This policy, sometimes called errors and omissions (E&O) insurance, protects businesses from negligence lawsuits. It can cover legal defense costs, plus any judgment or settlement fees.
• Business owner's policy. A business owner's policy, or BOP, bundles general liability with coverage for business property, like tools or equipment.
• Workers’ compensation insurance. Workers’ compensation insurance covers employees’ medical costs, lost wages, and any necessary benefits in the event of a workplace-related injury, illness, or death.
• Cybersecurity insurance. Cybersecurity insurance protects businesses against computer- or technology-related losses. It encompasses costs related to data breaches, ransomware attacks, or lost equipment containing sensitive company information.

Depending on your industry and business operations, other types of business insurance coverage include commercial auto, directors and officers, employment practices liability, and medical malpractice insurance.

If you’re unsure what kind of coverage you need, you can find out here, or contact a licensed insurance agent in your state, who can help you assess your business risks and determine the right policies to cover you.

“You’re an expert in your business, so you can’t be expected to be an expert in business insurance too,” said Prymas. “There’s a lot of information on our website, including a tool that will help you choose based on answers to a few questions. Or, you can call one of our licensed insurance advisors, or a local agent or broker, to get your questions answered.”

What kind of insurance coverage does my business need?

To determine what type of coverage your small business needs, ask yourself the following questions:

1. Do we meet with clients or vendors face-to-face?

General liability insurance is smart for any business, but it’s absolutely essential if you have a brick-and-mortar location, or otherwise meet with clients and vendors face-to-face. In any instance where third parties are involved, you’ll want to protect your business against claims of bodily injury, personal injury, and property damage.

2. Do we have property, including tools and equipment that we need to operate the business?

If your business has a physical space with furnishings, and/or any tools or equipment necessary to do your work, you may consider a business owner’s policy. This type of policy covers both general liability insurance (third-party coverage) and your business property (first-party coverage).

3. Do we give professional advice to clients?

Advisory-type businesses like consultants, tax preparers, and event planners, to name just a few, may need professional liability insurance (or E&O insurance). This insurance covers you if a client sues you for errors, omissions, or personal injury in your services.

4. Do we use computers and/or mobile devices to run our business and collect customer data?

Any business that uses computers or mobile devices should get cybersecurity insurance, which protects you in the event of a cyberattack. Small businesses are especially vulnerable to an attack, as they typically have fewer safeguards in place against opportunistic hackers.

Cybersecurity insurance can cover the (often hefty) costs associated with an internal or third-party data breach and phishing and ransomware attacks. It can also cover the costs of complying with regulatory requirements, including notifying and providing credit monitoring for those impacted.

5. Do we have employees?

Most states require any business with employees to have workers’ compensation insurance. This will cover any medical costs, lost wages, and benefits associated with workplace-related injury, illness, or death. If you don’t have workers’ comp, you’ll need to pay these costs out of pocket, in addition to potential fines or penalties by the state.

“Keep in mind that many businesses need more than one policy,” Prymas said. “General liability, despite its name, doesn’t cover everything. But by answering the questions above, you’ll find out which kinds of coverage you need — and which you don’t.”

How much does small business insurance cost?

The exact cost of your small business insurance will depend on several factors, including:

• The type of policy or policies you need.
• Your limits (the maximum amount an insurance company will pay for a claim) and deductibles (the amount your business is responsible for before insurance pays). Higher limits mean a higher policy cost, while higher deductibles will reduce your policy cost.
• Endorsements, also known as riders, to cover specific risks.
• Your industry and the risk associated with it. A construction company, for instance, would be perceived as higher risk — and therefore have a higher premium — than a consulting business.
• The size of your business. Larger businesses with more employees tend to have higher rates than smaller businesses.
• Your business’s location. Insurance rates are dictated by each state’s department of insurance.

The best way to determine your estimated annual or monthly premiums is to obtain a quote from a trusted insurance provider.

Get covered today with Hiscox small business insurance

As America’s leading small business insurer, Hiscox offers comprehensive coverage for your small business’s needs. This provider offers general liability insurance, professional liability (E&O) insurance, business owners’ policies, cybersecurity insurance, workers’ compensation, and other specialized coverage options.

Hiscox covers hundreds of industries across 49 states (plus Washington, D.C.) and customizes each policy based on industry-specific risks. You can also get a discount of up to 5% if you buy two or more Hiscox products.

“At Hiscox, we’re business insurance experts — that’s all we do,” said Prymas. “We understand that your business represents your dream, and we want to make it as easy as possible to protect that dream with the right insurance coverage.”

Ready to get your small business covered? Get a quote online or call 1-866-283-7545 to speak with a licensed insurance agent.