Types of Small Business Insurance Coverage

Business insurance isn't one simple policy, it's a collection of different coverages that protect various parts of your operation. You'll need to mix and match policies based on your specific business, industry and risk factors.

Some coverage is legally required, like workers' compensation if you have employees. Other policies aren't required by law but might be required by your landlord, clients or lenders  The rest comes down to protecting your business assets and income from the unexpected.

Learn about what each type of insurance actually covers and whether your business needs it. We've broken down the most common business insurance types to help you build the right protection for your company.

Below, we'll walk through the most common business insurance types. For each coverage, we'll explain what it is, what it covers, who needs it and what it typically costs so you can decide which policies make sense for your business.

General liability insurance covers third-party claims of bodily injury, property damage and personal injury, such as libel or slander. It covers the most common lawsuits businesses face, from slip-and-fall accidents to product defects.

Here's what general liability insurance pays for and what it won't cover.

Covers:

• Customer injuries on your premises (slips, falls, cuts)
• Property damage you cause to others (paint spills on client's carpet)
• Product-related injuries to customers
• Advertising injury claims (copyright infringement, slander, libel)
• Legal defense costs, even for groundless lawsuits
• Medical expenses for injured third parties

Key exclusions:

• Employee injuries (covered by workers' compensation)
• Professional mistakes or advice (need professional liability)
• Intentional wrongdoing or criminal acts
• Cyber attacks and data breaches
• Damage to your own property
• Auto accidents (need commercial auto coverage)

Nearly every business that interacts with customers, vendors or the public.

Coverage amounts:

• Minimum recommended: $1 million per occurrence / $2 million aggregate
• Higher-risk businesses: $2 million+ (restaurants, contractors, event planners)
• Service businesses: $1-2 million usually sufficient
• Consider umbrella policy: If business assets exceed $1 million

Factors increasing coverage needs:

• High foot traffic locations
• Physical products sold
• On-site customer services
• Higher annual revenue ($1 million+)

Your industry and business size are the biggest factors affecting what you'll pay for general liability.

Typical costs:

• Office-based businesses: $25-75/month
• Retail stores: $50-150/month
• Restaurants: $100-300/month
• Contractors: $150-500+/month

What affects pricing:

• Industry risk level
• Annual revenue and business size
• Number of locations
• Claims history
• Geographic location (litigation risk and crime impact cost)
• Coverage limits

Read More: The best general liability policies and cheapest providers.

Here are examples of potential claims that general liability covers:

Restaurant example: Customer slips on wet floor and breaks wrist. Medical bills total $8,500, plus $12,000 in lost wages. General liability covers the $20,500 claim.

Contractor example: Painter accidentally damages client's hardwood floors with paint thinner. Refinishing costs $6,200. Without coverage, contractor pays out of pocket.

Retail example: Defective coffee maker sold by electronics store causes kitchen fire at customer's home. Property damage reaches $45,000. General liability covers the claim and legal defense.

To protect their business and employees, companies with employees should get workers’ compensation insurance. It provides coverage for medical expenses and lost wages for injured employees. It also covers rehabilitation costs and death benefits if an employee passes away from a work-related incident. 

Unlike other types of business insurance, workers' compensation is legally required in most states. If you have at least one employee, you'll likely need workers' compensation coverage. Generally, if you have at least one employee, you will likely need to insure them with workers’ compensation.  Not having workers' comp can lead to penalties, depending on the state. For example, failing to provide workers’ compensation in California is a criminal offense punishable by a fine of up to $10,000, up to one year in jail or both.

Workers' comp covers job-related injuries and illnesses but has important limitations.

Covers:

• Medical expenses for work-related injuries and illnesses
• Lost wages (typically 60-70% of regular pay)
• Rehabilitation and physical therapy costs
• Disability benefits for permanent injuries
• Death benefits for families of workers killed on the job
• Legal defense if employee sues despite receiving benefits

Key exclusions:

• Injuries from intoxication or illegal drug use
• Self-inflicted injuries
• Injuries during commute (unless traveling for work)
• Non-work-related illnesses
• Independent contractors (in most cases)
• Emotional distress without physical injury

State laws determine when you must have workers' comp insurance.

• Most states: Required with one or more employees
• Georgia: Required with three or more employees
• Texas: Not required but strongly recommended
• Penalties: Fines up to $10,000+ and potential criminal charges in some states

Almost all businesses need workers' comp insurance.

Who needs it:

• Any business with employees (required in most states)
• High-risk industries: construction, manufacturing, restaurants
• Even low-risk businesses benefit from protection

Here is how much you should expect to pay: 

• Low-risk businesses: $0.50-2.00 per $100 of payroll
• Medium-risk: $2.00-8.00 per $100 of payroll
• High-risk construction: $8.00-20.00+ per $100 of payroll
• Example: $50,000 annual payroll at $2.50 rate = $1,250 annually

What affects pricing:

• Industry classification codes
• Claims history and experience modification (EMR)
• Payroll amount
• State location (rates vary significantly)
• Safety programs and training
• Return-to-work programs

Read More: The best workers' comp companies and cheapest policies.

Restaurant worker: Cook burns hand on hot grill, requiring emergency room visit and two weeks off work. Workers' comp pays $3,200 in medical bills plus $1,800 in lost wages.

Construction accident: Roofer falls from ladder, breaking leg and requiring surgery. Total medical costs reach $35,000, plus six months of disability payments totaling $18,000. Workers' comp covers all costs.

Office injury: Administrative assistant develops carpal tunnel syndrome from repetitive computer work. Workers' comp covers $8,500 in treatment costs and ergonomic workplace modifications.

Professional liability insurance, or errors and omissions (E&O), protects businesses against negligence claims, mistakes or inadequate work. It's especially important for service-based industries like consulting, accounting and healthcare. These policies cover legal defense costs and any settlements or judgments up to the policy limits.

Professional liability covers mistakes in your services but not physical injuries or property damage.

Covers:

• Professional negligence claims
• Errors in services or advice provided
• Failure to deliver services as promised
• Breach of professional duty

Key exclusions:

• Bodily injury or property damage (general liability covers this)
• Intentional wrongdoing or criminal acts
• Employment practices violations
• Cyber attacks and data breaches
• Contractual disputes unrelated to professional services
• Known issues existing before policy starts

Professional liability isn't legally required in most states, but can be required in these situations:

• Required for certain licensed professionals (doctors, lawyers, architects)
• Some states require it for insurance agents and financial advisors, and real estate and insurance agents
• Many clients require proof of coverage before signing contracts
• Professional associations may require coverage
• Government contracts often require professional liability coverage for professional services

Who needs it:

• Consultants and advisors (business, financial, IT)
• Healthcare professionals
• Real estate agents and brokers
• Accountants and tax preparers
• Architects and engineers
• Technology companies
• Marketing and advertising agencies

Coverage amounts:

• Small consultancies: $1-2 million per claim
• Healthcare professionals: $1-6 million per claim
• Large firms: $5-10 million+ per claim
• Consider aggregate limits: Annual maximum payouts

Your profession and the services you provide are the main cost drivers.

Typical costs:

• Low-risk consultants: $500-2,000 annually
• IT professionals: $1,000-5,000 annually
• Healthcare providers: $3,000-15,000+ annually
• Varies significantly by profession and coverage limits

What affects pricing:

• Type of professional services provided
• Annual revenue and business size
• Coverage limits selected
• Claims history
• Years in business

Here are real world examples that professional liability covers:

IT professional: Software bug in custom application causes client's system downtime for three days, resulting in $75,000 in lost revenue. Professional liability covers the claim.

Accountant: Tax preparation error costs client $25,000 in penalties and interest. E&O insurance pays the claim plus legal fees for defending against malpractice lawsuit.

Marketing agency: Campaign inadvertently uses copyrighted image, resulting in $30,000 lawsuit. Professional liability covers legal costs and settlement.

Commercial auto insurance covers vehicles used for business purposes, protecting against accidents, theft and damage. It provides higher liability limits than personal auto insurance and covers business-specific vehicle uses.

Commercial auto insurance provides higher liability limits than personal policies but excludes personal use.

Covers:

• Liability for injuries to others
• Collision and comprehensive damage
• Medical payments for occupants
• Uninsured motorist coverage 

Key exclusions:

• Personal use of business vehicles
• Racing or competitive driving
• Intentional damage
• Normal maintenance

State law requires this coverage for business-owned vehicles and commercial use of personal vehicles.

Required by law for company-owned vehicles. Also needed when using personal vehicles regularly for business.

Who needs it:

• Delivery and service companies
• Sales teams with company cars
• Any business owning vehicles

Coverage amounts:

• Follow state minimum liability requirements
• Consider 100/300/100 or more

Vehicle type, business use and driver records affect your commercial auto rates.

Typical costs:

• Light commercial vehicles: $1,200-3,000 annually
• Delivery trucks: $2,500-5,000 annually
• Fleet pricing varies by size

Cost factors:

• Vehicle type and value
• Business use type
• Driver records
• Location and mileage

This coverage protects your business's physical assets from damage or theft. Commercial property insurance covers your building, equipment and inventory.

What it covers and exclusions
Commercial property insurance covers most disasters but excludes floods and earthquakes.

Covers: Buildings, equipment, inventory and debris cleanup 
Excludes: Floods, earthquakes, normal wear and pest damage

Requirements
Lenders typically require this coverage if you have a business loan or mortgage. Required by most lenders and landlords, not by law.

Your property value, location and building type determine your premium.

Typical costs:

• Office space: $1-3 per $100 of property value
• Retail: $2-4 per $100 of property value
• Restaurants: $3-6 per $100 of property value

Cost factors:

• Property value and age
• Location and weather risks
• Security systems
• Claims history

These are business insurance types that some businesses will need but are less often purchased.

Business interruption insurance covers lost income when disasters force you to close temporarily. It pays for ongoing expenses like rent, payroll and utilities while you recover from covered property damage.

This coverage helps businesses that can't operate after fires, storms or other disasters damage their location. For example, if fire damages your leased building, business interruption insurance covers the cost of a temporary location plus your lost income during the closure.

The coverage only applies when physical property damage forces you to close. It won't cover closures from pandemics, utility outages or other events without property damage.

Product liability insurance covers lawsuits when your products injure customers or damage their property. It protects manufacturers, retailers and distributors from claims involving defective products.

If a product you sell injures someone due to a defect, this coverage pays for legal defense, medical expenses and settlements. For example, if your electronics cause a house fire or your food product makes customers sick, product liability insurance handles the resulting lawsuits.

Premiums vary based on your products' risk level and sales volume. Higher-risk items like medical devices, food products or children's toys cost more to insure than low-risk products like office supplies.

Commercial umbrella insurance adds extra liability coverage above your primary policy limits. It kicks in when claims exceed your general liability, commercial auto or other underlying coverage limits.

This coverage protects businesses from catastrophic lawsuits that surpass standard policy limits. If a customer suffers a severe injury at your business and medical costs exceed your $1 million general liability limit, umbrella insurance covers the excess amount.

Umbrella policies are cost-effective ways to get higher liability protection. They're especially valuable for businesses with significant assets or high lawsuit risk.

Cyber liability insurance covers costs from data breaches, ransomware attacks and other cyber threats. It pays for legal fees, customer notification, credit monitoring and system recovery after hackers compromise your data.

Any business storing customer information needs this protection. If criminals steal your customers' personal data, cyber insurance covers the response costs — which can easily reach $100,000 or more for notification, legal defense and system restoration.

The coverage also includes business interruption payments when cyber attacks shut down your operations. E-commerce businesses, healthcare providers and professional services face the highest risk and should prioritize this coverage.

Key person insurance pays your business if a critical employee dies or becomes disabled. It covers lost income and the costs of finding and training a replacement while your business recovers from losing someone essential.

This coverage works best for small businesses that depend heavily on one or two people. If your restaurant's head chef dies or your company's top salesperson becomes disabled, key person insurance provides cash to keep operations running during the transition.

Coverage amounts should reflect the person's contribution to your business income. Most policies pay between $100,000 to $1 million, depending on the individual's role and your company's revenue.

Before you get business insurance, determine what type to purchase based on the risks and liabilities associated with your business and industry.

• Assess Your Risks: Identify potential risks specific to your business and industry. Consider factors like business size, location and operational activities to help you determine the types and levels of coverage needed.
• Prioritize Legally Required Insurance: Workers' compensation and commercial auto insurance are legally required in most states, but the limits can vary. Find out how much liability insurance you legally need for your business, then evaluate if you need more based on your industry and business.
• Consult with an Insurance Agent: Seek advice from a professional to understand the best coverage options for your business needs. They can help tailor a policy to fit your budget and risk profile, ensuring you don't overpay for your premium.
• Compare Quotes: Obtain multiple quotes to compare coverage options and prices. Look for policies that offer the best value rather than the cheapest price.
• Review Policy Exclusions: Carefully read the exclusions in each policy to ensure you understand what's not covered. This will help avoid surprises during the claims process.
• Don't Choose the Cheapest Coverage: Minimal coverage might seem affordable, but it can leave you paying large claims out of pocket. It's better to ensure your business has adequate protection.

Use these tips as a starting point to determine what coverage you need and how much to buy to protect your business's future.

To provide you with financial insights, we answered some questions that frequently come up when learning about the most common types of business insurance.