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Written byJessica Martel
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Jessica is a freelance writer, professional researcher, and mother of two rambunctious little boys. She specializes in personal finance, women and money, and financial literacy. Jessica is fascinated by the psychology of money and what drives people to make important financial decisions. She holds a Masters of Science degree in Cognitive Research Psychology.
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Edited byNick Versaw
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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
Small-business insurance is a set of coverages that protects your company from financial losses due to accidents, property damage, lawsuits, and other unexpected events.[1] Depending on your industry, you may need property, liability, commercial auto, or workers’ compensation insurance.
To simplify coverage and keep costs down, you may choose to buy a business owners policy (BOP), which bundles several coverages into one.
This guide explains what small-business insurance covers, what it doesn’t cover, the main types of insurance, and tips to save on coverage.
Key Takeaways
The cost of small-business insurance varies based on factors like your ZIP code, industry, business size, and risk level.
Depending on your industry and type of business, you may need to have insurance before you can begin operating — especially if you have employees.
To save on coverage, compare quotes from multiple companies, bundle policies, and consider increasing your deductible.
Small-Business Insurance Explained
Small-business insurance is a collection of different coverages designed to protect your company from unexpected costs and losses. Federal law requires every business with employees to have workers’ compensation, unemployment, and disability insurance. States may also have requirements.
Depending on your business, you may need to purchase multiple policies to ensure you have ful protection for your company and employees. Small-business insurance can help cover your business from an accident, employee injury, cyber breach, lawsuit, and more.
For instance, if you own a small restaurant, and a customer sues you after becoming ill from eating your food, business insurance can help cover the claim and legal fees. Without insurance, you’d have to pay these costs out of pocket.
Good to Know
The number of small businesses in the U.S. far surpasses the number of large businesses, according to the Small Business Administration. More than 33 billion small businesses operate in the U.S. By comparison, there are a little less than 21,000 large businesses.
Who needs small-business insurance?
Whether you run a dog grooming salon, photography studio, handyman company, or coffee shop, most small businesses need insurance coverage. The type of insurance your business needs depends on factors including the type of work you do and whether you have employees.
For example:
If you have a shop or office that customers visit, you may want to consider a general liability policy.
If your company requires you or your employees to drive for business purposes, you may need commercial auto coverage.
If you’re in the business of giving financial advice, you’ll likely want errors and omissions insurance in case you make a mistake that costs a client money.
What small-business insurance covers
Small-business insurance is a collection of policies, each protecting you financially against certain types of risks. Depending on the type of business you run and the coverage you choose, small-business insurance can protect you against the following scenarios:
Customer injuries
Mistakes, errors, bad advice
Damage to a client’s property
Data breach
Losses from a covered peril (fire, theft, hailstorm)
Business interruption (lost income)
Workplace injuries
Workplace discrimination or harassment claims
A car accident in a work vehicle
What small-business insurance doesn’t cover
To determine what’s excluded from your small-business policy, carefully review your policy terms. The following are common small-business insurance exclusions:
Intentional or criminal acts
Employee theft
Wear and tear of equipment or property
Earthquakes and flood damage
Preventable risks (like failing to remove ice from in front of your store)
Subcontractors working for you
Types of Small-Business Insurance
Every small business faces unique risks that require different types of coverage. Some of the most common types of small-business insurance include:
General liability
General liability insurance protects businesses from financial losses such as bodily injury, property damage, medical expenses, libel, slander, and lawsuits. For example, a general liability policy will cover your small business if someone falls in your shop and gets injured, or if your employee damages a customer’s home while on the job.
Professional liability (E&O)
Professional liability insurance, also known as errors and omissions (E&O) coverage, protects against financial loss as a result of errors, negligence, or malpractice.
For example, if you’re an accountant and a client sues you for making a mistake on their taxes, professional liability will help protect you. Some states require professionals like doctors and lawyers to buy professional liability coverage.[2]
Business owners policy (BOP)
A business owners policy (BOP) is a package of different insurance coverages. A BOP typically includes property insurance, business interruption insurance, and liability protection.[3] For example, if a client visits your home office and slips and falls, a BOP policy will provide protection. Buying a BOP package is often cheaper than buying each policy separately.
Commercial property
Commercial property insurance provides compensation if a covered peril damages or destroys property you use to run your business. For instance, if your warehouse catches on fire, commercial property insurance will help pay to replace the structure. This policy can also cover business personal property such as office furniture, equipment, and tools.[4]
Workers’ compensation
In nearly every state, employers must have workers’ compensation insurance if they have more than three or five employees, depending on the state. This type of coverage pays for medical care and lost wages if an employee is injured on the job. If an employee dies due to a workplace injury, the policy will pay the employee’s family.
Commercial auto
If your business requires you or your employees to drive for work purposes, such as delivering food or driving equipment to a client’s house, you need a commercial auto policy. A commercial auto policy typically covers liability and property damages if a driver gets into an accident.[5]
Cyber liability
Cyber liability insurance helps protect your small business if someone hacks your computer systems or steals customer data. It’ll also help cover associated costs, including interruption of your operations, repairing your computer system, and rebuilding your business’s reputation.
What You Can Expect to Pay for Small-Business Insurance
The cost of small business insurance can vary widely based on factors including your ZIP code, the type of industry you’re in, the size of your business, industry risk, the size of your payroll, the coverages you choose, and the insurer you buy from.
For example, a general liability policy averages $500 per year, according to Insureon. For a BOP, The Hartford says its customers pay an average of $1,687 annually. And Progressive customers paid an average of $792 per year ($66 monthly) in 2024 for professional liability coverage.
Interesting Info
Nearly 98% of U.S. companies that exported goods outside the country in 2023 were small businesses. They accounted for $588 billion of the $1.8 trillion U.S. export industry.
Determining How Much Small-Business Insurance You Need
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The first step to determine how much insurance you need is to assess your business risks. Consider what could realistically go wrong. If you own a store, you’ll likely need protection from customer accidents, lawsuits, and natural disasters. If you own an online business, you’ll need to protect against cyberattacks. If your warehouse is located in a flood zone, you’ll need flood insurance.
In some cases, your clients or landlords may require that you carry a minimum amount of coverage.
Where to Buy Small-Business Insurance
When you’re ready to purchase small-business insurance, you have a few options:
Online marketplaces: With an online marketplace, you can quickly compare multiple small-business insurance quotes to see which policy is right for you.
Direct-to-consumer insurers: You can also go to individual insurance companies that specialize in small-business insurance, such as Next Insurance and Hiscox.
Independent brokers: Another option is to work with an independent insurance broker who can assist you in finding the best small-business coverage for your needs.
Whatever option you choose, aim to compare multiple companies so you can find the best quote.
How to Save on Small-Business Insurance
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To keep small-business insurance premiums down, consider these tips:
Compare multiple quotes. Use an online marketplace or get quotes from different insurers to find the company that’s best for your needs and budget.
Bundle insurance. Bundling coverages instead of purchasing separate policies can help you save. For instance, buying a BOP package is typically more cost-effective.[6]
Increase your deductible. Choosing a higher deductible can often help lower your monthly premiums.
Reassess annually. Review your coverage each year to see if your insurer still offers the best fit and price for your business needs.
Small-Business Insurance FAQs
Finding the right small-business insurance for your company can feel like a complicated task. If you still have more questions about small-business insurance, check out answers to some of our most frequently asked questions.
What’s the best type of insurance for a small business?
It depends. The best type of insurance for a small business hinges on factors such as its type, size, location, and risks. Common types of small-business insurance include property, liability, business auto insurance, and workers’ compensation coverage.
What kind of insurance do small businesses need?
Every small business with employees must have workers’ compensation, unemployment, and disability insurance. Generally, a business owners policy (BOP) provides the most important types of coverage for a small business, including property insurance, business interruption coverage, and liability protection.
How much should a small business pay for insurance?
It depends. The cost of small business insurance can vary widely based on factors including your ZIP code, the type of industry you’re in, the size of your business, industry risk, and the size of your payroll.
Do you need insurance to start a small business?
Depending on your industry and type of business, you may need to have insurance before you can begin operating — especially if you have employees. Even if it’s not legally mandated, small-business coverage is still a good idea, as it helps protect your company from financial risks.
Sources
- U.S. Small Business Administration. "Get business insurance."
- Insurance Information Institute (Triple-I). "Professional liability insurance."
- Triple-I. "What does a business owners policy (BOP) cover?."
- Triple-I. "Small Business Insurance Basics."
- Triple-I. "Business Vehicle Insurance."
- Triple-I. "How can I save money on my business insurance?."
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Jessica MartelPersonal Finance Writer
Jessica is a freelance writer, professional researcher, and mother of two rambunctious little boys. She specializes in personal finance, women and money, and financial literacy. Jessica is fascinated by the psychology of money and what drives people to make important financial decisions. She holds a Masters of Science degree in Cognitive Research Psychology.
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.
