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Written byMandy Sleight
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Mandy SleightInsurance Writer
Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She’s a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications, and she's been writing for Compare.com since 2023.
Mandy uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content that helps readers make smarter insurance choices that have a positive effect on their budgets and finances.
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Edited byNick Versaw
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Nick VersawSenior Managing Editor
Nick Versaw leads Compare.com's editorial department, where he and his team specialize in crafting helpful, easy-to-understand content about car insurance and other related topics. With nearly a decade of experience writing and editing insurance and personal finance articles, his work has helped readers discover substantial savings on necessary expenses, including insurance, transportation, health care, and more. As an award-winning writer, Nick has seen his work published in countless renowned publications, such as the Washington Post, Los Angeles Times, and U.S. News & World Report. He graduated with Latin honors from Virginia Commonwealth University, where he earned his Bachelor's Degree in Digital Journalism.
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In This Article
You face risks every day as a business owner. Business insurance helps protect your company’s finances when things don’t go as planned, whether it’s a customer injury, equipment damage, or a data breach. Even the smallest LLC or sole proprietorship can face risks that could derail operations without the right protection.
In this guide, we break down how business insurance works, the main types of coverage available, average costs, and how to find the best policy for your budget and needs.
Key Takeaways
Business insurance is a combination of commercial policies that protect your business against various risks.
Most policies are optional, but you’ll likely need workers’ compensation if you have employees and commercial auto insurance if you use vehicles for business.
Business insurance costs vary based on factors like your profession, location, claims history, and coverage needs.
Business Insurance Explained
Business insurance is a financial safety net that helps protect your company from accidents, lawsuits, property damage, and unexpected interruptions. Commercial insurance companies usually offer a wide range of policies, including commercial auto, product liability, professional liability, and data breach insurance.
Business owners typically purchase a mix of policy options tailored to their business structure, industry, daily operations, and specific risks to help protect their assets and business income.
For example, if you own a coffee shop and a customer slips and falls, your general liability insurance can help cover their medical bills and legal claims. If an employee gets hurt on the job, workers’ compensation can cover their medical expenses and lost wages.
Cost of Business Insurance
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The cost of business insurance can vary widely by policy type. On average, business owners pay between $60 and $118 per month for a business owners policy (BOP), according to data from several commercial insurers, including The Hartford, Progressive, Thimble, and more.
General liability insurance typically runs between $19 and $85 per month, and professional liability rates average $25–$66 per month.
Several key factors affect what you’ll actually pay, including:
Industry and risk level (higher-risk businesses cost more)
Location
Annual revenue
Number of employees and payroll
Claims history and loss experience
Coverage limits, deductibles, and policy options chosen
Local regulations
Your business structure
Why Small Businesses Need Business Insurance
No matter how small your company is, business insurance can protect your hard work and keep your doors open. Accidents, lawsuits, or unexpected property damage can happen to anyone, even the smallest businesses. For example, if you’re a local restaurant owner, one slip-and-fall or kitchen fire could lead to major claims and financial losses without proper coverage.
Freelancers also face risks. If a client claims an error cost them money or a data breach exposes sensitive files, professional liability insurance or cyber insurance can cover those exposures. And if you have employees, your state likely requires you to have workers’ compensation insurance, even if you’re a sole proprietor.[1]
Business insurance provides peace of mind, prepares you for the unexpected, and can keep out-of-pocket costs manageable, no matter what comes your way.
What Business Insurance Covers
What business insurance covers depends on the policy. Here are some common events a business insurance policy may cover:
Customer injuries and property damage: If a customer slips in your store or you accidentally damage a client’s property, general liability insurance helps cover medical bills and repair costs.
Fire, theft, and vandalism: Property insurance protects your building, equipment, and inventory from things like fires, break-ins, and vandalism.
Lost business income: Business interruption insurance helps replace income and cover ongoing expenses if you have to close temporarily after an event like a fire or storm.
Cyberattacks and data breaches: Cyber risks are evolving faster than ever and now exceed fraud and theft risks, according to the Insurance Information Institute (Triple-I).[2] Cyber liability insurance helps protect against data breaches, ransomware, and other digital losses.
What business insurance doesn’t cover
Even the most comprehensive insurance policy has limits. Business insurance doesn’t cover every situation, so it’s important to read your policy language, coverage limits, and endorsements carefully.
The following are common exclusions:
Illegal acts: Your insurance policy usually won’t cover losses resulting from criminal or unlawful actions.
Intentional acts: Insurance won’t cover the loss if a business owner or employee purposely causes damage.
Equipment maintenance: You’re responsible for keeping your equipment and vehicles well-maintained and in working order. Insurance usually doesn’t cover maintenance or wear and tear.
Acts of war: Insurance typically doesn’t cover catastrophic, widespread risks, like acts of war and nuclear events.
Types of Business Insurance Policies
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Every business faces different risks depending on what industry you’re in, how your business is set up, and what kind of day-to-day operations you have. Picking the right insurance means protecting your assets, avoiding nasty surprises from lawsuits, and keeping your business running smoothly.
Here’s a quick rundown of the main types of business insurance policies available.
General liability insurance
General liability insurance covers third-party claims for injuries, property damage, libel, slander, or advertising injury your business causes.[3]
For example, if a customer slips on a wet floor in your coffee shop or another company sues you for accidentally using a similar logo in your marketing, this general liability can cover medical bills, legal defense, and settlement costs.
Professional liability insurance
Professional liability insurance — also known as errors and omissions (E&O) insurance — protects businesses that provide professional services or advice, such as law firms and insurance agencies.
If a client sues over a mistake, incorrect results, missed deadline, or poor results that lose them money, E&O can cover legal defense costs, including settlements or judgments.
Business owners policy (BOP)
A BOP combines general liability insurance, property insurance, and business interruption insurance into one convenient — and often cheaper — package.[4]
For example, if a fire damages your storefront and a customer sues for injuries or property damage it caused, a BOP can cover both claims.
Workers’ compensation insurance
Workers’ compensation is usually mandatory if you have employees. It covers the cost of employee injuries, including medical bills, rehabilitation expenses, and lost wages.[5]
Say an employee hurts their back while lifting heavy equipment. Workers’ comp helps pay for their recovery and protects your company from lawsuits.
Commercial auto insurance
Commercial auto insurance covers the vehicles your business owners or employees use for work. If your delivery truck gets into an accident, business car insurance helps pay for repairs and medical costs for the people involved.[6]
Commercial property insurance
Business personal property coverage protects your company’s physical assets, like your building, equipment, furniture, and inventory, against risks like storms, fire, and theft.
For instance, if a storm damages your office and destroys equipment, commercial property insurance helps you repair or replace it so you can get back to work.
Commercial umbrella insurance
An umbrella policy gives you extra protection when your regular liability policies hit their coverage limits. Let’s say a hurt client sues you for $1.5 million, but your general liability policy covers only up to $1 million per occurrence. An umbrella policy can step in to cover the rest.
Business interruption insurance
Business interruption insurance is an endorsement (add-on) you can include on another commercial policy. It helps cover lost income and ongoing expenses, such as payroll and rent, if a natural disaster or fire forces you to pause your business.
Cyber liability insurance
With so much business happening online, cyber insurance is becoming essential coverage for businesses of all sizes. It helps cover costs associated with data breaches, hacks, or other cyberattacks.[2]
This includes notifications to customers, system recovery, and potential legal fees if sensitive information is compromised or stolen.
Product liability insurance
Product liability insurance protects you if a product you make, distribute, or sell malfunctions and causes damage or personal injury. Product liability claims are some of the most costly to defend and have some of the highest jury awards of any type of liability policy.[7]
How to Purchase Business Insurance
You’re ready to buy business insurance, but you’re not sure where to start. Here’s how most small business owners go about it:
Assess your risks. Think through what could go wrong, like natural disasters, property damage, employee injuries, data breaches, and lawsuits. What exposures does your particular business face, based on your industry, locations, and business operations?
Find an experienced insurance agent. Talk to insurance agencies and brokers with experience in commercial insurance. They can help you interpret policy language, recommend coverages and endorsements, and point out gaps you might miss.
Compare insurance quotes. Insurance policies can vary widely from one company to another. Shop around to compare rates, coverage limits, deductibles, and policy terms. This also ensures you find the most affordable rate for the business coverage you need. You can get policies through agents, brokers, insurance marketplaces, or direct-to-consumer insurers.
Reassess annually. A lot can happen in a year. Your business might expand, buy new assets, or take on new risks. It’s a good idea to review your policies annually to ensure your coverage still matches your current operations, and make changes if necessary.
How to Choose the Right Insurance Policy for Your Business
Choosing business insurance is about striking the right balance between affordability and protection. You don’t want to overpay for coverage you don’t need, but cutting corners can leave your business exposed.
Here are tips to save while protecting your business:
Bundle policies. Combine general liability and property insurance in a BOP or bundle your policies with the same insurer for lower premiums.
Raise your deductible. Taking on a higher deductible can reduce monthly costs. Just make sure your business can afford the extra cost if you need to file a claim.
Choose your limits carefully. Lower limits may save you money now but could put you at risk of greater financial loss if you don’t have enough coverage.
Improve workplace safety and training. Fewer employee injuries and claims can lead to lower rates over time.
Ask about discounts. Many insurers offer savings for security systems, good claims history, and paying your premiums in full.
Shop around and compare quotes. The best way to get the coverage you need at the right price is to get as many quotes as you can.
Business Insurance FAQs
If you still have questions about business insurance, the following answers may help.
What kind of insurance should an LLC have?
An LLC typically needs general liability insurance to cover third-party claims. Depending on operations, LLCs may also need professional liability, cyber insurance, workers’ compensation, or commercial auto insurance.
How much does business insurance cost?
Business insurance costs vary by industry, coverage limits, location, risk level, and policy type. Average rates range from $19 to over $115 per month. Compare multiple insurance quotes to find the best deal.
What does business insurance cover?
Business insurance covers damages, lawsuits, theft, property damage, employee injuries, and business interruptions. But your exact coverage depends on which policies you choose.
What type of insurance do you need to start a business?
A business owners policy (BOP) can be a great starting point for new businesses. It covers customer injuries, property damage, and business interruptions. You can customize a BOP to your specific needs or buy other business insurance policies to protect your company.
Is business insurance tax-deductible?
Yes, business insurance is usually tax-deductible, as long as it’s an ordinary and necessary expense. That means most businesses in your industry have it, and it’s essential to keep your business running smoothly.
How much insurance do you need for a small business?
It depends on your assets, operations, and risk exposure. A good rule of thumb is to purchase enough coverage to protect your property and cover potential liability claims.
Do you need business insurance as a sole proprietor?
Yes. Even sole proprietors face liability and property risks. Business insurance can protect your business and personal assets, since there’s often no corporate structure separating them.
Sources
- Congress.gov. "Workers’ Compensation: Overview and Issues."
- Insurance Information Institute. "Cyber liability risks."
- National Association of Insurance Commissioners. "Small Business Insurance."
- Insurance Information Institute. "What does a business owners policy (BOP) cover?."
- Insurance Information Institute. "Workers Compensation Insurance."
- Insurance Information Institute. "Business Vehicle Insurance."
- Insurance Information Institute. "Facts + Statistics: Product liability."
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Mandy SleightInsurance Writer
Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She’s a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications, and she's been writing for Compare.com since 2023.
Mandy uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content that helps readers make smarter insurance choices that have a positive effect on their budgets and finances.
Nick VersawSenior Managing Editor
Nick Versaw leads Compare.com's editorial department, where he and his team specialize in crafting helpful, easy-to-understand content about car insurance and other related topics. With nearly a decade of experience writing and editing insurance and personal finance articles, his work has helped readers discover substantial savings on necessary expenses, including insurance, transportation, health care, and more. As an award-winning writer, Nick has seen his work published in countless renowned publications, such as the Washington Post, Los Angeles Times, and U.S. News & World Report. He graduated with Latin honors from Virginia Commonwealth University, where he earned his Bachelor's Degree in Digital Journalism.
