Types of Business Insurance Coverage

There are many different types of business insurance that can be split into the mainstream or more popular coverages and those that are specialized and tailored to specific niches. For example, general liability is the most well-known and needed coverage for most small businesses while inland marine policies are more specialized to those in water transportation sectors.

In general, the most commonly needed types of business insurance coverage are as follows:

• General Liability Insurance
• Workers Comp Insurance
• Professional Liability Insurance
• Commercial Auto Insurance
• Commercial Property Insurance
• Business Interruption Insurance
• Commercial Umbrella Insurance
• Cyber Liability Insurance

Click on each business insurance policy type above to learn more about each and why they are often needed.

General liability insurance protects businesses from third-party claims of bodily injury, property damage, and personal/advertising injury during normal operations. It covers legal defense costs, settlements, and judgments for incidents like customer slip-and-falls, damage from your services, or advertising-related lawsuits. You may also hear it called public liability insurance or comprehensive general liability, but regardless of which term you use, it is the exact same policy.

• Who Needs It: Most small businesses
• When It Is Required: Often it is not required by law but may be required in some client, financing, or leasing contracts. Contractors may be required by state law as part of licensing requirements.
• Coverage Structure: Dollar Amount Limit Per Claim/Dollar Amount Aggregate Limit Per Year. You can also bundle it through a BOP policy with
• Recommended Coverage Amount: $1 million per occurrence and $2 million aggregate is recommended. We also suggest bundling it through a BOP policy which combines general liability, business interruption and commercial property.
• Why It Is Important: Bodily injury claims average $30,000 for businesses in the United States and 43% of small businesses face lawsuit threats annually.

Workers' compensation insurance provides medical benefits and wage replacement to employees who are injured or become ill due to their job on a no-fault system. Beyond protecting businesses from lawsuits by injured workers, this essential coverage extends to rehabilitation costs, disability benefits, and death benefits for dependents. Most policies come bundled in two parts for employee benefits (part a) and employer benefits (part b: AKA employers liability), but monopolistic states that require you to buy from the government may decouple them.

• Who Needs It: All businesses with employees (required by law in most states)
• When It Is Required: Mandatory in 49 states (Texas is the exception). Requirements vary by state - some require coverage with just one employee, others have different thresholds based on industry or number of workers.
• Coverage Structure: Premium rates per $100 of payroll based on job classification codes
• Recommended Coverage Amount: State-mandated minimums vary; coverage should meet statutory requirements plus adequate reserves for claims
• Why It Is Important: 2023 saw 5,283 workplace deaths and 2.6 million reported injuries in private industry, with average claim costs reaching $44,179. Penalties can also be severe if you don't meet state requirements, which can reach as high as $100,000 in California for civil penalties as an example.

Professional liability insurance protects businesses that provide professional services or advice from claims of negligence, mistakes, or failure to deliver promised services. When clients allege financial losses due to professional errors, omissions, or inadequate work performance, this coverage steps in to handle legal defense costs, settlements, and judgments. You'll often hear it called E&O or professional indemnity insurance, but they are the same thing with a different name.

• Who Needs It: Service-based professionals such as consultants, lawyers, healthcare professionals, accountants, architects need this policy type.
• When It Is Required: Often required by professional licensing boards, client contracts, or industry regulations. Some states mandate it for certain professions (Ex: Healthcare professionals need malpractice insurance).
• Coverage Structure: Claims-made basis with per-claim limits and aggregate annual limits
• Recommended Coverage Amount: $1 million per claim and $3 million aggregate, though high-risk professions may need $5-10 million
• Why It Is Important: Professional liability lawsuits in the medical field can cost $120,000 on average to defend even when claims are ultimately dismissed, and attorney fees for professional services lawsuits average between $3,000 to $150,000.

Commercial auto insurance covers vehicles owned, leased, or used by a business for work purposes. This essential protection provides liability coverage for bodily injury and property damage caused by business vehicles. Additionally, it includes comprehensive protection against vehicle damage from collisions, theft, vandalism, and weather events, covering everything from company cars and trucks to personal vehicles used for business activities.

• Who Needs It: Any business that owns vehicles or has employees who drive for work purposes
• When It Is Required: Legally required in all states for business-owned vehicles. Also needed when employees use personal vehicles for business (hired/non-owned coverage).
• Coverage Structure: It is traditionally structured with per-accident limits for liability, plus comprehensive and collision coverage with deductibles. You can also create a combined single limit policy for all damages, called a CSL policy.
• Recommended Coverage Amount: Minimum $1 million combined single limit, though $2-5 million is often recommended for higher-risk operations
• Why It Is Important: Average bodily injury claims reached $22,734 while total loss claims increased 29% as vehicle replacement costs soar.

Commercial property insurance protects business-owned buildings, equipment, inventory, furniture, and other physical assets from covered perils like fire, theft, vandalism, and weather damage. This policy typically includes business personal property coverage including moveable items like computers, tools, and inventory receive protection both on and off premises. Contractors can also add tools and equipment coverage as part of their policy for any specialized items used as part of this policy.

• Who Needs It: Any business with physical assets, inventory, equipment, or office space
• When It Is Required: Often required by mortgage lenders for owned buildings and by landlords for tenants through lease agreements
• Coverage Structure: Replacement cost or actual cash value coverage with specific limits per category of property
• Recommended Coverage Amount: 100% replacement cost value of all business property, including buildings, equipment, and inventory
• Why It Is Important: Theft and burglary represent the most common commercial property claim at 20% of all claims, averaging between $8,000 to $50,000 per incident. Water damage follows at 15% of claims with average costs of $17,000, often from undetected pipe failures or HVAC malfunctions.

Business interruption insurance (also called business income insurance) compensates for lost revenue and covers ongoing expenses when a business cannot operate due to a covered property loss. During the restoration period, it helps maintain cash flow by covering lost profits and fixed expenses like rent and utilities. The policy also addresses additional costs needed to resume operations quickly.

• Who Needs It: Any business that would suffer financial losses if forced to temporarily close operations
• When It Is Required: Not legally required but often mandated by lenders or recommended as part of comprehensive property coverage
• Coverage Structure: Coverage based on historical financial records with specific time periods (12-24 months typical)
• Recommended Coverage Amount: 12-24 months of gross earnings plus fixed expenses, calculated from financial statements
• Why It Is Important: 25% of businesses that close due to disaster never reopen and the average business interruption claim lasts 7 months, making adequate coverage critical for survival.

Commercial umbrella insurance provides additional liability coverage that kicks in when the limits of underlying policies (like general liability or commercial auto) are exhausted. Unlike primary policies, it offers broader coverage and protects against catastrophic lawsuits that could threaten business assets. The policy sits "above" other liability policies like an umbrella, hence its name.

• Who Needs It: Businesses with significant assets to protect or higher liability exposure from operations
• When It Is Required: Often required by contracts, especially with government entities or large corporations requiring $5+ million in coverage
• Coverage Structure: Excess coverage over primary policies with high limits (typically $1-10 million increments)
• Recommended Coverage Amount: $1-5 million for small businesses, $10+ million for larger operations or high-risk industries
• Why It Is Important: The median nuclear verdict (jury awards exceeding $10 million) rose to $44 million in 2023, up from $21 million in 2020, while the average nuclear verdict is now $89 million.

Cyber liability insurance, or data breach insurance, protects businesses from financial losses related to data breaches, cyberattacks, and technology failures. From forensic investigations and legal fees to customer notification and credit monitoring, this coverage addresses the mounting costs of cyber incidents. Regulatory fines and business interruption from cyber events are also included, with coverage typically spanning both first-party costs and third-party liability claims.

• Who Needs It: Any business that stores customer data, processes payments electronically, or relies on computer systems
• When It Is Required: Increasingly required by client contracts, vendor agreements, and some industry regulations (HIPAA, PCI-DSS)
• Coverage Structure: First-party coverage for direct costs plus third-party liability coverage, often with separate sublimits
• Recommended Coverage Amount: $1-5 million depending on business size, with higher limits for companies handling sensitive data
• Why It Is Important: Small businesses face attacks nearly four times more frequently than large organizations, with 99% of cyber claims affecting small and medium enterprises.

Some businesses need specialized business insurance types depending on their specific industry and commercial assets. For instance, if you in manufacturing, you'll likely need some form of product liability insurance to protect you in cases where items you sell injure or cause damages to customers due to defects.

So to ensure you have a grasp of all commercial coverage types available we've created a comprehensive guide to specialized plans below:

In general, you are required to have commercial auto insurance in some form if you use vehicle for business purposes and workers comp is required if you have employees. There are also select cases where general liability, professional liability and commercial property insurance are required by licencing laws and contracts regarding clients, financing or leasing.

While this is a general guide to requirements, the policies you need depends on your firm's specific risks. So below, we've summarized all the types of business insurance coverages you will need by general industry:

• Manufacturing: General liability insurance, product liability insurance, workers' compensation insurance, commercial property insurance.
• Construction and Contractors: General liability insurance with completed operations coverage, workers' compensation insurance, commercial auto insurance, professional liability insurance.
• Healthcare: Professional liability insurance (medical malpractice), general liability insurance, cyber liability insurance, workers' compensation insurance.
• Technology: Professional liability insurance, cyber liability insurance, general liability insurance, workers' compensation insurance.
• Retail: General liability insurance, product liability insurance, commercial property insurance, workers' compensation insurance.
• Professional Services: Professional liability insurance, general liability insurance, cyber liability insurance, workers' compensation insurance.
• Food Service: General liability insurance, product liability insurance, workers' compensation insurance, commercial property insurance, liquor liability insurance (if you sell alcohol).
• Transportation: Commercial auto liability insurance, cargo insurance, general liability insurance, workers' compensation insurance.

Each state sets its own rules for business insurance coverage, creating a complex landscape for business owners. Workers' compensation and commercial auto insurance are standard across most states, but you'll find different employee counts, exemptions, and industry rules depending on where you operate.

The table below shows what each state requires for business insurance, including key exemptions and special rules that might apply to your company.

*State insurance requirements change frequently and vary by business type. This information is for general guidance only. Verify current requirements with your state's insurance department or licensed agent.

Buying business insurance that is right for you is a difficult process and requires a lot of research and understanding of your company's risk. So below, we've simplified the process down to five simple steps to help you find the best business insurance for you.

Your state probably requires some basic coverage like workers' compensation and commercial auto insurance, and that's your starting point. But meeting the minimum requirements won't protect you from the real financial hits your business could face. Add specialized policies where needed, and you'll have the financial security to keep your business running when problems arise.

Have questions about business insurance? We've got answers to the most common ones: