What Types of Insurance Does a Small Business Need?

Friday, July 23, 2021

Insurance policies for small businesses are often different to other kinds of policies. With small business being the most common type in the United States1, it’s worth learning about the kinds of insurance policies needed.

What Kinds of Insurance Does a Small Business Need?

First and perhaps most important is the Business Owners Policy. This typically includes a variety of insurance sold as a single contract. The Business Owners Policy is the most common insurance for small businesses in the US2 – so let’s look at it in more detail.

What Is the Business Owners Policy?

The Business Owners Policy (BOP) combines insurance to cover all major liability insurance risks, as well as major property insurance risks. A BOP prevents small business owners from needing other kinds of insurance3. And because it includes a variety of insurance, it’s well suited to the needs of small businesses.

One type of insurance for small businesses that comes bundled in the BOP is business income insurance. You might know this as business interruption insurance. It pays small business owners for income lost during a disaster.

Disasters are classified as significant events that disrupt a business's operations. If such an event was to occur and your business had to leave its premises temporarily as a result, your business would be covered. Business income insurance would also pay for any extra expenses you might incur because your company had to operate from a temporary location.

Can You Add Additional Insurance to Your BOP?

Yes, you can add a number of different insurance to your BOP to suit your business's specific insurance needs. For example, you could add coverage for an outdoor sign if your small business owns one (though this specific coverage would come at an additional premium).

Your small business might also depend on e-commerce. You could get coverage for any extra expenses and/or lost income your business might incur if a computer virus or hacker were to disrupt trading.

What Businesses Are Eligible for a BOP?

The only businesses that can get a BOP are small or medium-sized businesses4. Even these businesses must meet specific criteria to be eligible for a BOP. Insurers look at many factors – ranging from the size of your company's premises and the necessary liability limits to what kind of business you run. Insurers also consider how much work your small business does off site. Your premium then reflects these factors.

However, the insurer also bases your premium on other factors: fire hazards, building construction, how stable your business's finances are, the location of your small business, and any security features put in place.

What Types of Insurance for Small Businesses Should You Buy?

Property insurance:Start with a property insurance policy for small business. Property insurance pays out if your business's property is lost or damaged due to common hazards like theft or fire.
Property insurance doesn’t just cover your building. It also covers personal property – a term insurers use to refer to everything from computers, machinery and raw materials to your inventory5. Essentially, if something is critical to your business's operations, it falls under the category of "personal property" in this context.
Property insurance may even cover some kinds of water damage, debris removal following a fire or other damaging event, and equipment breakdown. However, this varies depending on the kind of property insurance policy you get.
Liability insurance:This is also important, since any kind of business can face a lawsuit. It is possible one of your customers may allege your business harmed them because of a defective product. Other common justifications customers use when filing lawsuits can include some sort of error in a service your business provides, or claims your business didn’t treat their property well enough. A customer could also claim your small business somehow created a dangerous environment.
Liability insurance pays for damages if your business is liable, up to the limits of the policy. In addition to this, liability insurance pays for attorney fees and other expenses associated with your legal defense. Liability insurance pays for the medical bills of anyone who got hurt on the business's premises, or anyone hurt by the premises.
Business auto insurance: Business auto insurance simply covers automobiles your small business owns. Business auto insurance pays for any costs to third parties who suffer either damage to their property or bodily harm if your small business is legally liable. Of course, business auto insurance pays these costs up to the limits of your policy.
Workers' compensation: You’ll need workers' compensation insurance if you employ over a certain number of people. This number differs from state to state – but it’s typically 3-5 employees6. Workers' compensation insurance pays for the costs of medical care and supplies a portion of lost wages for employees who get hurt while at work. Workers' compensation insurance pays these costs no matter who was responsible for the injury.
In the event that workers die because of injuries suffered while working, the insurer compensates the deceased employee's family. If you run a business alone or with one other person out of your home, you might not need to buy workers' compensation insurance. However, a tiny business often needs more liability insurance and more property insurance than most homeowner’s insurance policies provide.

What About Other Types of Insurances for Small Businesses?

Some businesses provide advice, give recommendations and design things for customers. Other businesses care for the physical needs of a customer, or represent someone else's needs. Running these types of businesses carries with it the risk a patient, client or customer could sue your small business and allege the business didn't do something properly that caused them an injury. If you get professional liability insurance, it will cover these kinds of circumstances. Professional liability insurance also pays for legal defense costs, even if there was no wrongdoing in the first place.

Another kind of insurance you might need for your small business is employment practices liability insurance. Employment practices liability insurance covers damages from things like an employer violating the legal or civil rights of an employee. This kind of insurance pays for a judgment if the insured is legally liable for it, and for legal defense costs. This is important, because legal defense costs can prove significant even if there was no wrongdoing.

And of course, there’s also employee health insurance. Traditional health insurance policies can be beyond the budget of many small businesses. But Allstate Benefits Solutions’ Self-Funded Program protects your profits with cost-effective, high-quality plan designs, networks and benefit options.

Get a quote right now, or call us on (930) 203-1232.