As a business owner, you need adequate business insurance to protect yourself and your business from financial liability. There are many different types of business insurance, so you need to understand the coverage options to determine which policies are right for your business. Learn about the various types of insurance coverage in this comprehensive guide to business insurance.
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- One application reaches all carriers to save time
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Hiscox policies are designed to meet the needs of independent contractors and freelancers
- Standard coverage limits up to $2 million but can go higher with underwriting approval
- Covers more than 180 different industries
What is business insurance?
Business insurance is a set of insurance products that manage the financial risks of operating a business. There are many different types of business insurance, and most businesses purchase insurance that covers multiple risks. Depending on which type of insurance you buy, the coverage would protect a business, its owners, employees, or customers.
Overall, business insurance policies protect your financial assets from lawsuits, property damage, theft, vandalism, loss of income, and employee injuries or illness. Some states require businesses to purchase certain policies with minimum coverage levels. Which industry your business is in may also dictate the types of insurance you need.
Types of business insurance policies
Business insurance is a certain type of policy. Instead, it is the collective term used for the different types of insurance policies you can buy to cover risks your business may face. Here are the most common types of business insurance policies and what they cover.
General liability insurance. Covers claims against bodily injury to someone else, property damage to another's property, or personal injury.
Commercial property insurance. Protects your building and equipment used to run your business. This insurance also protects a property that you are renting.
Workers' compensation insurance. Provides benefits to employees if they get sick or injured from their job. It can pay for medical bills, cover lost wages, or pay for ongoing care or funeral costs.
Business income insurance. Replaces your lost income if you can't run your business due to property damage or other covered reasons. These policies are also known as "business interruption insurance."
Commercial auto insurance. Protects your vehicles, employees, and other people and property in case of an accident. If you're performing work functions and get into an accident, your personal auto insurance policy may not provide coverage.
Commercial umbrella insurance. Provides extra coverage in the event a claim exceeds your liability policy limits.
Professional liability insurance. Covers claims resulting from mistakes your business made while providing services. These policies are also known as "errors and omissions insurance."
Data breach insurance. Helps businesses cover the costs when customers' personally identifiable information is lost or stolen. Data breach insurance is also called "cyber insurance."
Why is purchasing business insurance important?
Owning and running a business is inherently risky. On any given day, events can happen that could result in expensive lawsuits or settlements that could bankrupt your business. Business insurance helps mitigate those risks through policy benefits and coverages at an affordable price.
The key is to identify the biggest risks for your business and determine how much coverage you need to buy. Many small businesses start out with basic levels of insurance that address the biggest risks. Then, as their business grows, they buy additional policies and increase coverage limits based on their budget and risk profile.
Benefits of business insurance
When you purchase business insurance, there are many benefits for business owners, employees, customers, and others involved in the business. The primary benefits go to business owners by reducing their risk of financial liability in case of property damage or if someone gets sick or hurt. An insurance premium is a small price to pay to reduce risk and protect your personal wealth and the future of your business.
Workers benefit from business insurance policies because they protect them from medical bills and loss of wages in case they get sick or injured while on the job. And customers benefit from business insurance because they'll be compensated if a faulty product harms them, their personal information is compromised, or other dangerous situations put them at risk. Business insurance policies also encourage business owners to reduce risk at their place of business to keep premiums lower. This provides a safer environment for employees and customers.
Lenders typically require business insurance policies to protect the repayment of loans to business owners. If there is a lawsuit or settlement against the business, insurance proceeds can keep the business running (and making payments on its loans). And when a business cannot operate due to damage to the premises, business interruption insurance provides funds for the business owner to keep paying its bills.
The business insurance process and timeline
The process of getting your business insurance policy depends on the insurance company and the type of policy you want to purchase. Start by comparing multiple insurance carriers to determine which policy fits your needs and budget. Once you've made your choice, complete the application and submit it to the insurance company.
The insurance company will review your application and reply with any additional documentation requests. For example, a workers' compensation policy may request a list of employees and recent payroll reports. Depending on the type of insurance policy, your application may be approved immediately. In some cases, you'll receive temporary coverage until the insurance company can validate your information.
Once the insurance company approves your application, make your first premium payment. While you can pay monthly, most companies offer a discount if you pay your annual premium in one payment versus 12 monthly payments. After making your first payment, your insurance is effective immediately. The insurance company will issue a certificate of insurance (COI) as proof that your business is insured.
How to compare business insurance policies
When comparing business insurance policies, you need to look beyond the cost of premiums. The lowest-priced policy is typically more affordable for a reason. It may have lower coverages, higher deductibles, more exclusions, or other factors that impact its ability to reduce your risks. That defeats the purpose of buying insurance in the first place.
To find the right policy for your business, start by comparing these factors:
Application process. Are you able to complete your application and purchase coverage online, or do you have to speak with an insurance agent to finalize your policy?
Type of policy. What risks does this policy address?
Coverage limits. How much coverage are you buying?
Deductibles. How much will you have to pay out of pocket if there is a claim?
Exclusions. What situations are not covered by the policy? Is there a waiting period before the policy starts coverage?
Discounts. Will you receive a discount from this insurance company if you buy multiple policies? Are there other steps you can take to reduce your premiums?
Financial strength of insurance company. How strong is the insurance company? Is it financially strong enough to stay in business if large claims all happen at once?
Claims process. What is the claims process like? Can you submit claims online or do you have to speak with a claims adjustor at the insurance company? What is the average time for a claim to be processed?
An overview of the top business insurance providers
Our favorite: Next Insurance
Next Insurance has over 420,000 customers and covers more than 1,000 types of businesses. The company specializes in business insurance policies, and you can receive a customized quote online within five minutes. And there are no extra fees if you want to pay your premiums monthly instead of annually. The company is rated "A- Excellent" by AM Best, which indicates that the company is financially strong.
Best for workers' compensation insurance: Travelers
Travelers is a full-service insurance company offering policies for consumers and businesses. It is the number one writer of worker's compensation insurance policies in the industry, so it has the size and experience to handle any type of claim you may encounter. Since most states require companies with employees to have this type of coverage, going with the most trusted company makes sense. While Travelers is such a large company, you'll be working one-on-one with a local agent to handle all of your insurance needs.
Best for commercial auto insurance: Progressive Commercial
Progressive Insurance is one of the most popular auto insurance companies for personal and business vehicles. It is the number one commercial auto insurance company in America with more than one million vehicles under coverage. Coverages are customized to match your business needs ranging from business autos, trucks, trailers, and industrial vehicles like semis and dump trucks. Customers can get a quote online or by calling a Progressive insurance agent.
Best insurance for restaurants: AmTrust Financial
AmTrust Financial is a niche specialty property and casualty insurance company with over 500,000 small commercial insurance policies in force. It offers a variety of insurance policies, but it is our choice for the best insurance for restaurants. Restaurant insurance policies from AmTrust are tailored to the needs of restaurant owners and cover both individual and chain restaurants. The company's database covers thousands of claims from restaurant owners and workers that provide insights into common workers' compensation injuries and how to reduce your risk of a future claim. A.M. Best rates AmTrust as "A- Excellent."
Best insurance for small business retail: Farmers Insurance
Farmers Insurance began in 1928 and has since grown into one of the largest and most well-known insurance companies. It has over 48,000 independent insurance agents working in local communities to serve its clients. Farmers Insurance is an excellent choice for small business retail stores because its policies are tailored to meet your needs and budget. Your policy can cover many of your business' largest risks, including property damage, loss of income, injuries, and employee theft.
Best for independent contractors: Hiscox
Hiscox has been supporting business owners since 1901 and now has over 500,000 small business customers. Independent contractors and freelance workers choose its business insurance policies because it offers flexible payment options, tailored policies covering the biggest risks, and worldwide coverage no matter where you work. Get an insurance coverage quote for your business through the company's website or by calling one of its licensed agents.
Best for general liability: Nationwide
General liability insurance is one of the most basic yet most important insurance policies that a business needs. Nationwide is one of America's largest insurance companies and it has been providing insurance protection since 1925. Its general liability insurance policies are easily customized to address your needs while keeping premiums affordable. As a large insurance company, it has the financial strength to grow with your business to continue offering coverage no matter how large your business becomes.
Best business owners policy: Liberty Mutual
Liberty Mutual is a leading insurance company that ranks first for financial responsibility (surety) in the U.S. and globally. And it is the fourth-largest commercial insurance writer in the U.S. With a business owners policy (BOP) from Liberty Mutual, you'll receive business property and general liability insurance in one policy. Combing coverages can save money and make filing claims easier when a problem arises. Customers can easily expand coverage as well if they want all of their policies from one insurer.
Best marketplace to compare options: Simply Business
Simply Business is our choice for the best business insurance marketplace. The company started in 2005, and its technology enables small business owners to compare policies from 15 of the highest-rated insurers. With one simple online questionnaire, you'll receive quotes from multiple insurance companies to compare coverages, features, and premiums. In many cases, you can purchase your policy on the spot and start your coverage immediately for as little as $22.50 per month. Or, you can speak with a live agent to discuss your coverage needs and find the right policy for your business.
How much does business insurance cost?
Business insurance premiums vary depending on the type of insurance, the size of your company, how long it has been in business, coverage limits, deductibles, previous claim history, and other factors.
The best way to determine how much insurance will cost your business is to get quotes from multiple sources. Compare each policy's features, coverage limits, exclusions, deductibles, and other relevant aspects. Online business insurance quotes are often quick, so we recommend getting at least three. Consider working with an insurance broker who can generate quotes from multiple insurance companies at once. Then, compare the quotes from online sources and the broker to determine which policies are right for your business.
According to Insureon, an online marketplace for business insurance policies, these are the costs for the most common types of insurance. These average monthly premiums are based on an analysis of 28,000 policies purchased through its site.
- General liability – $42 per month
- Business owner's policy (BOP) – $53 per month
- Professional liability (E&O) – $59 per month
- Workers' compensation – $47 per month
- Commercial umbrella – $75 per month
Frequently Asked Questions
Who needs business insurance?
All businesses should have some form of business insurance to protect against financial risks. Many businesses must have insurance to meet local laws, lease clauses, loan collateral requirements, and other factors impacting their operations. The types of insurance, coverage limits, and policy features vary by industry and location of the business.
How do I determine the amount of business insurance I need?
Generally, insurance coverage decisions are determined by risk factors, local laws, third-party requirements, and the business' budget. Many business owners start with a policy that meets basic requirements and then expand coverage as the business grows.
What are the three major categories of business insurance?
The three major categories of business insurance are general liability, commercial property, and business income. General liability protects against damage or injury to others, while commercial property protects the building and property used to run your business. Business income insurance helps to replace your income if your business cannot operate due to a covered situation.
What does business insurance typically cover?
Business insurance typically covers risks a business owner experiences by running their business. These policies help to pay the costs of property damage, injuries to customers or employees, lawsuits, lost business income, and other covered claims. Business owners typically have more than one type of policy to cover the unique needs of their business.