Business insurance protects companies from a range of legal and operational risks. It can cover general liability, property damage, workers' compensation claims and losses from cyberattacks.
Each of these insurance types can be purchased separately or bundled into a multi-peril policy. Riders can be added to policies to protect against additional risks, such as business interruptions or the departures or deaths of key employees.
Table of contents
- How business insurance works
- Types of business insurance
- What business insurance doesn’t cover
- How to buy business insurance
- What documents are needed for a business insurance policy?
- Summary of Money's guide to business insurance
How business insurance works
Think of business insurance – including small business insurance – as a contract between a business and an insurance company. The business pays a monthly premium to the insurance company in exchange for the company's promise to share the cost of certain losses.
If the business has a covered loss, such as a fire or flood, it can file a claim with the insurance company. The insurance company will then investigate the claim and pay out an appropriate amount of money, as per the business owner's policy and the insurer’s judgment.
How a claim is processed will vary depending on the size and complexity of the claim, as well as on the insurer and the type of insurance policy. However, the general process is as follows:
- The business owner files a claim with the insurance company.
- The insurance company assigns a claims adjuster to the case.
- The claims adjuster investigates the claim and gathers evidence of the loss.
- The claims adjuster assesses the damages and determines how much money the insurance company will pay out.
- The insurance company issues a payment to the business owner to help them recover from the loss.
Business insurance can help companies to protect their assets and financial future from a variety of risks, including:
- Property damage
- Liability lawsuits
- Employee injuries and illnesses
- Business interruption
- Product liability
It is important for businesses to carefully evaluate their insurance needs and purchase insurance coverage that’s adequate to protect their businesses.
Types of business insurance
Business insurance companies offer a wide range of products, which can be broadly divided into two categories: property insurance and casualty insurance. Some of these products are available as standalone policies, while others can be added to existing policies as riders or add-ons.
Certain insurance products are required by law for all businesses, while others are optional. Some may be described broadly as business insurance, while others may be presented as small business insurance and geared specifically to modest enterprises.
It is important to note that the following insurance products represent only a few of the many different types of coverage offered by insurance companies. Specialized coverage options such as product liability insurance are also available to meet the unique needs of different industries, such as agriculture, aerospace, real estate and wine.
General liability insurance
- Covers claims and lawsuits against a business arising from bodily injury, property damage, medical expenses, death, slander or libel.
- Provides liability coverage for legal fees, settlements and judgments in eligible claims.
Commercial property insurance
- Protects against the loss or damage of a business's physical assets, notably the business property but also tools, equipment, inventory, furniture, important documents and outdoor landscaping.
- Covers equipment breakdown, vandalism, damage from broken pipes, fire and certain natural disasters.
Business owners' policy (BOP)
- Bundles multiple coverage options into a single policy designed for small and medium-sized businesses.
- Typically includes liability, property, and business interruption coverage, with some policies also including cybersecurity coverage.
Cyber liability insurance
- Covers expenses related to data breaches, cyberattacks and other cyber events, including direct financial losses, customer loss and legal costs.
- Essential for businesses that are vulnerable to cyberattacks, such as online retailers, online services, fintech companies and insurance companies.
Workers' compensation insurance
- Covers medical care, lost wages, and disability benefits for employees who are injured at work.
- Required in every state (except Texas) for businesses that employ more than a certain number of workers, with the minimum number of workers required varying from state to state.
Commercial auto insurance
- Typically covers liability for bodily injury and property damage resulting from accidents involving business-owned vehicles.
- Can also cover non-owned vehicles used by employees for business purposes.
Professional liability insurance
- Also known as errors and omissions insurance, this type of insurance provides coverage for professionals who offer advice or services to clients.
- Protects against claims of financial losses due to malpractice, professional negligence, errors or omissions.
Common riders for business insurance
- Commercial property floater: Covers movable property, such as equipment and inventory, whether on or off the premises.
- Personal property rider: Increases property coverage for highly valuable items beyond standard policy limits.
- Business interruption insurance: Provides financial protection during unexpected disruptions to normal operations.
- Key person coverage: Shields the business from the financial impact of losing a key employee or owner due to death or disability.
What business insurance doesn’t cover
Business insurance covers a wider range of risks, but certain losses and events are typically excluded from coverage. The following are common exclusions from business insurance policies:
Intentional and criminal acts
The insurance company will not cover claims for damage that’s intentionally caused by the insured, an employee or a key person at the company, or where fraud or theft by those individuals is involved.
Lack of maintenance or mitigation
Business insurance providers will not cover damages caused by a lack of maintenance. For example, they will not cover damage to a roof that was not properly maintained and so suffered water damage from leaks.
Commercial property insurance doesn't typically cover damage from floods, earthquakes, wars or acts of terrorism. These events can affect many policyholders at once and lead to disastrous losses for insurance providers. Business owners may be able to purchase separate insurance policies or riders to cover these types of losses.
If your business has suffered a loss and you need financial assistance, there are a few options available to you:
- SBA funding programs: The Small Business Administration (SBA) offers a variety of funding options for businesses in need, including disaster assistance loans and economic injury loans.
- Private lenders: A number of private lenders offer loans to businesses. Use online resources, including Money.com, to compare lenders and find the best rates and terms for your needs. Our guide to the best small business loans can be a good starting place.
How to buy business insurance
Before you compare small business insurance costs and policies online, take some time to plan your coverage needs. This will save you time and money in the long run.
Here are six steps to follow:
1. Take stock of business assets
As a small business owner, you should make a list of everything your business owns, including property, equipment and inventory. Then, determine the value of those assets to ensure you have enough coverage to replace them if they are damaged or lost.
2. Identify coverage needs
Consider all of your business's functions and activities. Then, determine which types and levels of coverage are needed to protect your business from the risks associated with those activities.
3. Get professional help
It's best to work with an insurance professional, and preferably one that handles products from multiple insurers, such as an independent insurance agent or online marketplace. They can assess your coverage needs and help you find the right policies and coverage limits for your business.
4. Compare quotes from multiple insurers
Once you know what coverage you need, get quotes from multiple insurers, assuming an agent or online marketplace you used has not already completed this step. This will help you find the best rates and coverage for your needs.
5. Consider bundling policies
Many insurers offer discounts when you purchase multiple policies together. Bundling policies can also save you time and effort when paying premiums, contacting customer service and filing claims.
6. Review coverage regularly
Your business needs may change over time, so it's important to take stock of your coverage from time to time to make sure it matches your current needs.
What documents are needed for a business insurance policy?
The information and paperwork required to purchase a business insurance policy will vary depending on the type of policy or policies you want to buy. However, you should generally have the following items on hand:
- Business name, location and partners
- Business registration and incorporation documents
- List of business assets and liabilities
- Information on your business checking account (if you don’t have a separate checking account for your business already, we recommend you take a look at Money’s best business checking accounts)
- Number of employees (if applicable)
- Contact information for yourself and the company
- Health and safety policy documents
- Professional certificates (if applicable)
- Estimate of your business's revenue for the upcoming year
- Description of business operations and occupational hazards (e.g., handling hazardous chemicals, performing on-site installations for clients)
- Information about company vehicles and driver details (for commercial auto insurance)
- Insurance history, including existing policies and prior claims
Summary of Money’s guide to business insurance
Business insurance typically encompasses a diverse range of coverage types designed to shield the owners and employees of an enterprise from a multitude of risks.
Common coverages include liability insurance that safeguards against the repercussions of unintentional actions, along with commercial insurance to protect the business's buildings, vehicles, equipment and other assets. Supplementary add-ons, referred to as "riders," can compensate business owners against unforeseen disruptions in company operations and the untimely demise of a crucial employee.
It's important to understand that not every setback a business might encounter is covered by business insurance. A policy won't protect you against the consequences of a rogue employee who commits criminal acts, for instance. Additionally, you won't be able to collect on a claim deemed the result of negligence on your part, such as failing to properly maintain company property, or of a catastrophic event like war or an act of terrorism.
Small business insurance policies can be dedicated to specific needs or bundled into a comprehensive multi-peril policy. As with any insurance policy, it's advisable to seek professional assistance in acquiring the coverage, preferably from an insurance agent or broker who represents a variety of insurers.