Types of Small Business Insurance: An Overview

Small business insurance is essential for assuring the smooth and successful operation of your company. Without it, you leave your livelihood vulnerable to potentially devastating liabilities like injuries, data breaches, lawsuits and property damage. But the types of insurance necessary for business depend on the business you are in. Use this guide to get to know your options.

To learn more, reach out to an experienced AAA Insurance agent who will help you with a customized small business insurance policy that meets your needs and budget.

Shopping for Small Business Insurance

When considering insurance options, assess the risks that are unique to you and your business. A business with employees, property and a fleet of vehicles will have different coverage requirements than someone who is self-employed and works from home. Likewise, the equipment and tools that need protection vary from field to field.

Some types of small business insurance are required by law (more on that below). Once those are taken care of, you may want to select additional coverages. “As a general rule, you should insure against things you wouldn’t be able to pay for on your own,” says the U.S. Small Business Administration.

Your insurance agent will help to find you a variety of coverage options at different price points to choose from. Read through your quotes thoroughly. AAA Insurance encourages business owners to “choose coverage over cost.” One of the most common business insurance pitfalls is insufficient coverage due to choosing the cheapest policy or lowest deductible.

And as with any type of insurance, it is also a good idea to re-assess every year to maintain the right protection for any updates or changes that occur over time.

Types of Small Business Insurance

General Liability

A base policy for any type of business that covers financial loss due to a variety of third-party claims (claims from outside of your company), including bodily injury, property damage, legal fees and medical expenses. It can also help cover libel and slander. It is especially important for businesses that physically interact with customers and/or work at other people’s properties.

Example: Someone falls while shopping in your store and you are found to be at fault. General liability insurance will help to pay for the medical expenses of the injured and cover legal fees if they sue you.

Business Owner Policy

Packaging general liability, commercial property coverage and business interruption into one, this policy covers what general liability doesn’t do alone, including fire, theft and natural disasters like wind and hail.

Commercial property coverage is useful for businesses with a lot of property, as it protects the location(s) of your business and other assets such as equipment and inventory. It could also be beneficial to those who operate their business out of their homes because it provides coverage beyond your homeowners policy.

Business Interruption covers revenue losses in case of a disaster, specifically, if the damage of physical assets such as machinery or vehicles are cause for a loss of revenue.    

Example: Your restaurant is inoperable due to smoke damage caused by a fire. A business owner policy will help to replace the equipment, as well as the revenue lost until you are able to get up and running again.

Professional Liability

Professional liability is for businesses that provide services to customers. It will protect the business if a client believes they suffered a financial loss due to an error or omission on your part.

Example: An employee at your accounting firm gives financial advice to a client that causes him to lose money. This coverage can help pay your legal fees if they sue you for negligence or malpractice.

Workers’ Compensation

Mandatory in many states, workers’ compensation covers employee lost wages and medical treatment in the event of a work-related injury or disease.

Example: You own a contracting business and one of your employees falls off a ladder on the job, breaking their leg. Workers’ compensation will pay for their medical expenses and their wages while they are out of work.

Cyber Liability

Small businesses are a top target for cyberattacks and data breaches. If your business digitally collects or stores personally identifiable information on customers or employees, there’s the risk that information may be breached, and your company will face significant fees. Cyber liability protects your finances in the event of an attack, whereas general liability does not.

Example: Someone hacked into your network, putting hundreds of customers’ personal information at risk. Cyber insurance will help cover the cost to notify customers and any resulting legal consequences. Good cyber insurance also gives you access to breach coaches, data specialists and legal experts that can assist you.

Read about four reasons your small business could use cyber insurance.

Commercial Auto

Whether you need to cover one vehicle or an entire fleet, and even if employees need to drive their own cars to do their job, commercial auto insurance makes sure that you are all covered from accidents.

Example: A worker using the company van hits a customer’s car while out making deliveries. This coverage will assist in paying for damages.

What defines a small business?

Generally, a small business is one that makes under $5 million in gross annual revenue, pays less than $300 thousand in annual payroll or has a fleet of less than nine vehicles.

Is small business insurance a legal requirement?

The federal government requires every business with employees to have workers’ compensation, unemployment and disability insurance, according to the SBA. Some states may also require additional insurance. Understand your legal obligations in the state(s) you operate in prior to signing any contracts or lease agreements.

If you operate in multiple states or have traveling employees, your policy can be extended to cover your liability under the workers’ compensation laws of another state.

“Businesses that have employees working in other states should carefully research state requirements of each state and enlist the help of a licensed insurance agent to avoid an uncovered claim,” said Steve Holland, manager of commercial lines for AAA Insurance.

As a small business owner, you have enough on your plate. With the right type of business insurance, you can worry less.

The AAA small business insurance team serves as a trusted advisor to thousands of small businesses in the Northeast. Schedule a call to speak with one of our commercial experts to see how they can help your business.

Looking for a small business loan? AAA has you covered there, as well.

This article has been updated and republished from a previous version.