Starting a small business can be freeing. After all, you become the boss. You make your own schedule, you set your own terms, and you build your career from the ground up. What could be better?
Still, it’s not perfect. Small businesses also come with risks — both legally and financially speaking.
Fortunately, the right small business insurance policies can help offset this risk and safeguard you from potential liability in all sorts of scenarios. They also ensure your assets, earnings, and employees are protected.
Are you starting your own small business? Here are the types of insurance policies you’ll want to consider before you do:
The first type of insurance you’ll want is liability coverage, which protects you if someone is hurt or suffers damages due to your business, its products, employees, vehicles, or actions.
There are several types of liability policies, and the right one really depends on what type of business you run. In many cases, you will want several liability policies at once.
Here are just a few of the types of liability insurance you might need for your business:
A general liability insurance policy protects your business if someone is hurt on your property. This might be a slip and fall on wet tile or trip over a loose wire or cable on the ground.
When issues such as these occur, general liability will kick in and cover the injured individual’s medical bills and damages, as well as attorney’s fees that might come of any lawsuit.
Professional liability/errors and omissions coverage
A professional liability policy — often called errors and omissions coverage — protects you from damage resulting from the services your business provides. If you provide pest control services, for example, but you failed to remove all the rodents on a recent service call, you might be held liable for any damage those pests did afterward.
Professional liability also protects you from damage that a worker causes while working off-site, like breaking a water main while digging on a customer’s property or cracking a window while performing cleaning services.
In these situations, professional liability insurance would protect you and cover the costs of your legal defense and any damages.
Product liability insurance
If your business creates and sells physical products, this might be the coverage you’d consider. These policies cover damages (to people or to property) caused by any defective or faulty products you might sell, as well as the medical and legal fees that result from those incidents.
Employment practices liability
Employment practices liability protects you if an employee brings action against your company — specifically for something your business did in violation of their civil or legal rights (like wrongful termination, for example). This type of coverage is only necessary if you have employees — not if you’re a sole proprietor.
Cyber liability insurance
This is also called data breach insurance, and it covers your business in case of a hack or data breach of some sort. It covers things like alerting your clients of the breach, hiring a PR firm to restore your reputation, and paying damages associated with the hack.
In some cases, the coverage might also extend to extortion (if a hacker demands a ransom, for example) and regulatory fines you might be charged due to the breach.
Directors and officers liability
D&O insurance protects your company’s executives from being held personally liable as a leader of your company. It can cover any legal costs, damages, and other fees that may come if a lawsuit is filed against them, and it can also protect your leaders (and their assets) if the company declares bankruptcy.
Fiduciary insurance covers you if someone loses money or employment benefits due to an error by your company or an employee. This is insurance you’ll want if you have a fiduciary duty to your consumers. This can include insurance agents, real estate brokers, and financial advisors. If you sponsor an employee benefit plan, this qualifies as a fiduciary duty, too.
As you’d probably guess, liquor liability insurance covers you if your business sells, serves, or even distributes alcohol (like at a holiday party, for example). It would kick in if an employee over-served a patron who then got in an auto accident, or in other cases where the alcohol you provided led to damages. It can be used toward your legal costs, medical bills for anyone injured, repair costs if the property is damaged, and any settlements or judgments that result from a lawsuit.
Commercial property insurance
If you have a physical office, store, or building, commercial property insurance can help you protect it. This type of policy covers damage done to the building, as well as any items in it — things like equipment, tools, furniture, electronics, etc. It also covers you in the event of natural disasters and harsh weather events — except for floods (you’ll need a specific flood insurance policy for that). It can also cover losses due to theft or vandalism.
Keep in mind that you need property insurance regardless of whether you own or lease your property — and even if you work from home. Not only can the policy protect the building you’re housed in, but anything within it too, including equipment, inventory, fixtures, and more. Without insurance, replacing these in the event of a disaster could be costly.
Business income insurance
Things can change at a moment’s notice — shutting down your business, as well as all the income that comes with it. Business income coverage protects you when this happens, covering your lost earnings if some unforeseen circumstance — like a fire, hurricane, flood, theft, etc. — forces you to close doors temporarily.
This is also sometimes called business interruption insurance. and can help you stay afloat when the unexpected happens. You’ll receive payouts based on your average business income and expenses, so make sure you keep good records of these.
Workers compensation coverage, sometimes referred to simply as is required in most states if you have even one employee (other than yourself). It covers their medical bills, care, and lost income if they’re injured on the job.
In some areas, you may need to get this policy from a state agency or fund; in others, you can get one through a private insurance company as with any other type of coverage.
An important note here: even if your state does not require you to have workers compensation insurance, you should strongly consider it. Forgoing this type of coverage puts you at high risk for financial losses should an employee get injured.
Commercial auto insurance
If your company owns or operates any vehicles, you’ll need an auto insurance policy for the business. This protects you, your employees, and your vehicles in the event of an accident.
Commercial insurance is also smart if you provide any sort of deliveries or transport for people — even in your own personal vehicle. Even driving for Uber, Lyft, or your local pizza chain can qualify here.
An umbrella policy offers coverage above and beyond what you already have. This would kick in if you saw significant losses or damages that went beyond another policy’s limits. It’s not always necessary, but it could be a good option if you’re in a particularly risky field.
Umbrella policies are specifically for liability, so they’ll cover things like injuries on your property, damage done in an accident, and the legal costs and fees that result from those incidents.
Business owner’s policy
A simple approach is to get what’s called a business owner’s policy, or BOP. These are a type of bundled business insurance policies that usually include general liability insurance, business property insurance, and business income/interruption insurance.
Think of them as kind of a one-size-fits-all solution. Rather than taking out multiple policies, you get several coverages all at once. From there, you can add on other specialized coverages and endorsements as needed. For example, you might add on cyber liability, liquor liability, or commercial auto insurance, depending on your business needs.
Though the term “marine” is used here, this type of insurance coverage isn’t for seabound businesses. In fact, it actually covers products that are transported on the ground. It’s a critical type of insurance coverage if your business is in shipping, transportation, freight, or something similar — particularly if you move high-volume, high-dollar items.
You might also consider it if you attend regular conferences or trade shows that require freighting. This type of policy would cover you if the damage was done to your items while in transport.
Special events coverage
You’ll want special events coverage if you host any type of gathering — public or private. This can include conventions, trade shows, holiday parties, weddings, and more. If someone were to suffer an injury at one of these events, your coverage would kick in and pay for medical bills and other losses. It could also be used if the property was damaged at one of your events (for example, if a hotel conference room was vandalized at a convention you host).