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Insurance for small business owners: A simple guide for 2024

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If you own a small business, you’ve invested time and money into its startup, operation, and — hopefully — its expansion. That investment could get wiped out if unforeseen events occur.

There are a number of situations that can lead to financial losses for a company. A customer can sue for negligence. A worker could get hurt on the job. A business can suffer property damage from a variety of causes. There’s also the risk of something happening to you, the business owner.

That’s why there are so many different types of insurance for small business owners. Depending on the type of business you run and how many people you employ, here are the types of insurance you may need.

General liability insurance

Every business — including those that are home-based — needs general liability insurance, because it covers most of the common types of accidents that can occur when you’re interacting with a customer or client. This coverage protects against financial loss as the result of:

  • Third-party bodily injury
  • Third-party property damage
  • Third-party claims of libel
  • Third-party claims of slander
  • Legal defense of a claim
  • A lawsuit arising out of one of these things

General liability insurance is strongly recommended no matter the size of your business because it protects you against these “third-party” claims. Who counts as a third party? Anyone with whom you interact during the course of your workday who isn’t yourself or your employees. This is the insurance policy that will often protect you from accidents big and small that involve a customer or passerby: think spilling a cup of coffee on a client’s computer or leaving a tool laying around their home.

Beyond proactively protecting your business from everyday accidents, it can also give your business the legitimacy you need in order to gain more (and bigger) customers. In fact, many companies and organizations will require their vendors to provide proof of insurance — most commonly, general liability insurance — in order to be approved for a job.

In summary, general liability insurance is an essential layer of protection over your day-to-day operations and the gateway to even more success.

Commercial property insurance

If your business operations include property and other physical assets, you need commercial property insurance. It protects your business against loss and damage to your facilities, equipment, tools, and computers caused by events such as fire, weather, civil disobedience, and vandalism.

You may want to tack on additional coverage that insures you against the loss of business earnings caused by the aforementioned property damage. For example, say you have to shut down a manufacturing facility for several days due to damage from a storm. This type of comprehensive coverage will cover both the property damage and the lost earnings caused by the shutdown.

Home-based business insurance

If you operate a business out of your home, you should add a rider to your homeowner’s policy that offers additional protection on business equipment and liability coverage for third-party injuries.

Workers' compensation insurance

If you have employees, you need workers' compensation insurance. In fact, it is required by law. It covers the business and its employees in the event they are injured on the job. The insurance provides wage replacement and medical benefits. It also helps protect you and the business from legal actions taken as a result of workplace injuries.

Product liability insurance

Product liability coverage is necessary for businesses that manufacture, wholesale, distribute, or sell products. It protects against financial loss caused by defective products that cause injury or harm.

Professional liability insurance

Also known as malpractice insurance or errors and omission insurance, professional liability coverage protects service businesses against financial loss when a service provider commits an error or is negligent, and as a result, causes a negative result for a customer. Physicians, lawyers, financial services professionals, contractors, subcontractors, and hair salons are just a few of the types of businesses that need professional liability insurance.

Data breach insurance

A fairly new type of coverage is offered to businesses that store sensitive information about their customers and employees. A data breach policy helps cover the costs involved if a breach occurs that puts that data at risk of being stolen and misused.

Business owner's insurance

Instead of buying the necessary insurance as individual policies, you can get a business owner's policy that packages many of the above options into one policy. A business owner's policy typically includes:

  • Property insurance
  • Business interruption coverage
  • Vehicle coverage
  • Liability insurance

In addition to simplifying the insurance-buying process, a business owner's policy can also save you money when compared to buying coverage individually.

Life insurance

For small business owners, life insurance can meet a number of needs. If you die unexpectedly, the death benefit can replace your income that would be lost. Life insurance helps the survivors pay bills, cover debts, and pay for funeral expenses.

Life insurance can also help ensure the continuation of your business if you die. The policy’s death benefit can cover the expenses needed to recruit a professional to manage the business in your place.

If you’re a partner in a business, life insurance can also provide the funds needed for the remaining partners to buy your share from your estate. And if the transfer of your business to heirs might incur an estate tax, a life insurance policy can help your heirs pay that bill.

[ Related read: What are the different types of life insurance? ]

Disability insurance

Estimates range from 25 percent to 30 percent of American workers will endure some type of temporary disability during their careers that will prevent them from working.

If you’re a self-employed business owner, you have two big reasons to invest in disability insurance. First, an injury or illness can prevent you from earning an income from your business activities. Second, you may need insurance benefits to keep your business afloat while you recover from your disability.

Individual disability insurance is designed to replace a major portion of your income if you are unable to work due to injury or illness.

Get a personalized disability quote in seconds.

[ Related read: Disability insurance for self-employed workers, explained ]

Business overhead insurance

Business overhead expense (BOE) insurance helps cover your monthly business expenses if an injury or illness impacts your ability to work. The typical maximum monthly benefit is between $15,000 and $25,000. The amount the policy pays in benefits will be based on the company’s monthly overhead expenses each month, up to a cap.

You can obtain BOE coverage as a standalone policy or bundle it with your personal disability policy. Business overhead insurance typically has a maximum benefit period of two years. If your disability lasts longer, the BOE coverage will at least keep your business afloat until you can sell, liquidate, or arrange for somebody else to manage the operations. If you have a business loan, your lender may require this type of insurance coverage.

Bottom line

Buying insurance for small business owners is not a one-and-done transaction. As your business grows, your insurance needs will change as well. You should work with an independent insurance agent to help you assess your needs and re-assess them about once a year.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published February 4, 2020
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