Key takeaways

  • Just like you need separate policies to insure your car and your home, you need different business insurance policies to protect against different business risks
  • State laws require most businesses with employees to have workers’ compensation 
  • Many owners also choose to add business liability insurance, which steps in if there is a lawsuit against their business

Building a business is never easy. You put countless hours and a hefty dose of resources into getting your company off the ground. You want to do everything you can to protect it and set it up for further success.

Enter business insurance. With the right policies, you can protect your company against many situations that could potentially ruin it.

But there’s likely no single small business insurance policy that offers all the coverage your company needs. Most business owners have to purchase multiple policies to get the right protection. So, let’s look at what types of insurance for small businesses are generally recommended — and which coverages might be right for your company.

What is business insurance?

Business insurance is exactly what it sounds like: insurance you buy to protect your business. You can get coverage to pay for repairs or to replace your stuff after a fire at your office. Or you can buy commercial auto insurance for your company cars, which is similar to buying personal auto insurance.

But insurance for a small business goes even further. Insurance pros have developed a wide range of policies to protect against specific business risks. Knowing the risks that face your business helps you choose the right types of small business insurance for you.

What insurance is required for small businesses?

In some cases, business insurance isn’t optional. State laws might mandate that you have certain kinds of coverage. Many states require that when businesses hire their first employee, they’ll need to buy workers’ compensation insurance, for example.

As you pay employees, you’ll usually be required to pay into your state’s unemployment insurance program. Some states also require employers to fund a disability insurance plan, but it’s relatively rare that you’ll need to pay into it yourself (these usually get funded from employee’s paycheck withholdings).

Beyond that, your state might legally require commercial auto insurance if you buy a vehicle under your business.

Any insurance agent in your state should be able to tell you which coverages your business needs under state law.

Types of business insurance

Here, we’re giving you a rundown of the most common types of small business insurance.

Note that this isn’t a comprehensive list. Talking with an insurance agent can help you identify other risks you might want to insure against depending on your business. Larger companies generally benefit from key person insurance, for example, which helps them weather the storm if a critical employee dies or cannot work.

One more note: Each of the policies we’re exploring comes with limits. The protections we’re talking about apply up to the maximum dollar amount laid out in your policy.

Type of business insurance Description
General liability insurance Pays legal fees and settlements (up to your policy limits) if you get sued for a covered general cause
Product liability insurance Pays legal fees and settlements (up to your policy limits) if you get sued for a covered product-related cause
Professional liability insurance Pays legal fees and settlements (up to your policy limits) if you get sued for a covered professional mistake-related cause
Commercial property insurance Pays for repairs to the property and replacement for any damaged items and equipment lost in a covered cause
Home-based business insurance Pays for property repairs, business equipment replacement and some liability claims if you run your business out of your house
Business income insurance Pays for lost business income due to a covered cause
Workers’ compensation insurance Pays for employee’s medical care and lost wages if they get hurt or sick on the job
Data breach / cyber security insurance Pays for the cost of managing the fallout if your customers’ personal information gets compromised in a data breach
Commercial umbrella insurance Pays for added coverage if you hit the policy limit on applicable other liability policies
Commercial auto insurance Pays for property damage and bodily injury claims that occur after an at-fault accident in the company-owned vehicle, along with theft and vandalism of the vehicle
Business owner’s policy Bundles common coverages together into one policy (e.g., business liability insurance, business income insurance and commercial property insurance)

General liability insurance

This insurance policy steps in if you find yourself in legal trouble. If someone sues you — say they slip and fall at your business or accuse you of slandering them — this kind of business liability insurance helps to cover the cost of the legal proceedings. That means it pays for the legal fees to defend yourself. And if your case doesn’t end in your favor, it pays for the settlement up to your policy limits.

Most insurance professionals recommend business liability insurance for all companies.

Product liability insurance

If you make something that hurts someone or makes them sick, your business can be held liable as the product manufacturer. But if your company has this type of small business insurance, it can cover the cost of legal fees and settlements up to your policy limits.

Professional liability insurance

If your business provides a service and a mistake with that service causes another person or entity harm, you could end up in court. If you do, this kind of business liability insurance helps pick up the tab. Like other liability insurance, it covers legal fees and any resulting settlement up to your policy limits.

This type of business liability insurance is also called errors and omissions (E&O) insurance.

Commercial property insurance

This works a lot like your home or rental insurance policy. For example, if a fire happens in your office, the policy can help with everything from dealing with smoke damage to replacing damaged equipment and office furniture.

Like your personal property insurance policy, this kind of coverage excludes earthquakes and floods. You’ll need to get separate policies to guard against those risks if you live in an area where you might face those natural disasters.

Home-based business insurance

If you operate your business out of your house, don’t assume your homeowners insurance policy will cover it. Fortunately, you can work with your insurer to extend your home insurance coverage or seek out a separate home-based business insurance policy.

Usually, these will protect your space and the equipment you use for your business while offering some liability coverage.

Business income insurance

If your business has to close, you risk actively losing money — from the lease on your office to the payroll for your employees. But if you have to close because of something that’s covered by your business income insurance policy — like a fire — the policy can help keep things afloat.

Workers’ compensation insurance

This insurance protects your employees if they get hurt or sick on the job. It pays for any medical care they need, saving you from having to cover the bill (or ending up in court over it). And it replaces a portion of the wages they lose while they can’t work.

Most states require this insurance once you hire any type of employee.

Data breach/cybersecurity insurance

If you store personal information digitally, this policy can help you if you experience a data breach. What a cybersecurity policy covers will vary, so carefully read any options you’re considering. Often, coverage goes toward the cost of recovering any data you can and notifying the affected people. Some policies will even help to pay for the public relations campaign you need to soften the blow afterward.

Commercial umbrella insurance

If you’re in a particularly high-risk field, you might want this added layer of protection. Commercial umbrella insurance extends the policy limits of certain liability policies. If a settlement exceeds the limit of your general liability insurance, for example, this additional coverage steps in to help with the remainder of the cost.

Commercial auto insurance

Commercial auto insurance works just like your personal auto insurance, paying for any property damage or bodily injury that you or one of your employees cause behind the wheel of a company vehicle. Depending on your coverage, it can also cover the company car if it gets stolen or vandalized.

Business owner’s policy

A business owner’s policy (BOP) is one policy that bundles several coverages together. You can work with your insurance provider to tailor this policy to your business’s needs. Generally, though, BOPs include some combination of business liability insurance, business income insurance and commercial property insurance.

How much does business insurance cost?

According to Progressive, in 2022, the average general liability policy cost new customers $72 a month ($864 a year). The Hartford estimated that general liability costs $1,057 a year ($88 a month). That said, your small business insurance cost depends on what your business does, where it operates and the insurer you choose to work with.

Ultimately, the best way to budget for your small business insurance cost is to talk to an insurance pro. If you choose an independent insurance agent, they can shop policies from different insurance providers for you. Compare quotes from different insurance companies to ensure you’re keeping your small business insurance cost to a minimum.

Bottom line

Business owners want to protect their companies, and business insurance gives them a way to do just that. But there’s no blanket policy that offers all of the protection each unique business needs (although a BOP may come close).

Consider the risks facing your business and talk about them with an insurance agent. That way, you’ll be able to put the right types of small business insurance in place to safeguard all of your hard work.

Frequently asked questions


  • Most states require workers’ compensation insurance once you hire even one employee. Beyond that, many business owners choose general liability insurance and commercial property insurance to protect their companies.

  • That depends on your business, but most should at least consider the coverages we’ve outlined above. Talking with an insurance agent can help you identify the risks your unique business faces and the right policies to limit them.

  • Not necessarily (although if you plan to hire employees or buy a company vehicle right away, state law may mandate workers’ comp and commercial auto insurance, respectively). That said, owning a business is already a risky venture and going without insurance may leave you exposed in key areas.