Types of Business Insurance Plans: How to Decide Which Is Right for You

Insurance can help you protect your business from a variety of risks. Some of the most common types of business insurance plans include:

  • General liability insurance
  • Commercial property insurance
  • Business income insurance
  • Professional liability insurance
  • Workers’ compensation insurance
  • Employment practices liability insurance
  • Product liability insurance
  • Commercial auto insurance
  • Commercial umbrella insurance
  • Cybersecurity insurance

Understanding how each type of business insurance (also referred to as commercial insurance) works can help you determine which coverage options you may need.

Key Takeaways

  • Business insurance is designed to protect business owners from financial losses associated with a range of covered events.
  • Different types include general liability, commercial property, and workers’ compensation insurance.
  • Like other types of insurance, business insurance can require you to pay premiums as well as deductibles.
  • There are several different varieties of business insurance that you could use to protect your business.
  • Purchasing a package policy that includes several different types of coverage is one way to save money on business insurance.

Types of Business Insurance

Coverage Type What Risks Does It Protect Against? What Costs Does It Cover? What Does It Cost?
General Liability Lawsuits from people outside of your company, including consumers or vendors Legal fees, settlement costs, and medical expenses for injured parties $42/month
Commercial Property Damage to business property Repair or replacement costs of damaged property $63/month
Business Income Loss of income due to a business slowdown or suspension stemming from property damage Lost income $85/month
Professional Liability Lawsuits relating to claims of negligence, errors, or malpractice Legal fees and settlements $61/month
Workers’ Compensation On-the-job injuries Medical bills and lost income for injured workers $45/month
Employment Practices Liability Lawsuits relating to unfair employment or hiring practices Legal fees and settlements $182/month
Product Liability Injuries or bodily harm caused by defective products Legal fees and settlements $42/month (usually included in general liability premium)
Commercial Auto Vehicles driven for business use Repair costs, medical bills, legal fees, and settlements $147/month
Commercial Umbrella Lawsuit settlements that exceed coverage limits of other business insurance Legal fees and settlements $75/month
Cyber Liability Cyber-hacking and data breaches Varies; may include costs to restore data, enhance security, or settle liability lawsuits $140/month

The figures listed above represent the average monthly cost of various small business insurance products, according to Insureon, an online marketplace for small business insurance. The actual cost of insuring a small business may be lower or higher, depending on your unique situation and needs.

1. General Liability Insurance

General liability insurance provides liability coverage if your business is sued. This type of coverage is fairly comprehensive and can protect you against claims stemming from a number of different circumstances.

What risks does it protect against? General liability insurance protects you against lawsuits filed by people outside of your company, such as suppliers or customers.

What costs does it cover? This type of policy can cover the costs of a lawsuit, including settlements paid to claimants and medical expenses related to personal injury claims.

Forgoing general liability insurance could leave your business open to significant losses if you’re sued.

2. Commercial Property Insurance

Commercial property insurance protects your business property against a wide variety of losses. For example, if your property is damaged as a result of a natural disaster or civil unrest, your policy could pay to repair or replace affected assets.

What risks does it protect against? Commercial property insurance covers damage resulting from fire, smoke, wind, hail, civil disobedience, and vandalism.

3. Business Income Insurance

Business income insurance is a type of coverage designed to supplement commercial property insurance. This kind of policy protects you if your business income is interrupted due to property damage.

What risks does it protect against? Business income insurance protects you against missing income associated with the slowdown or suspension of business resulting from damage to property.

What costs does it cover? This type of policy helps to replace lost income from operations.

4. Professional Liability Insurance

Professional liability insurance is liability coverage for losses resulting from perceived mistakes that you made in doing your job. You may purchase this type of insurance to supplement any events not covered by a general liability policy.

What risks does it protect against? Professional liability insurance can protect against lawsuits that may arise as a result of negligence, malpractice, or errors.

What costs does it cover? This type of policy can pay out benefits to cover lawsuit settlements and legal fees.

5. Workers’ Compensation Insurance

Workers’ compensation insurance is a type of liability coverage that protects your business if one of your employees gets injured on the job. State law can determine what types of businesses are required to have workers’ compensation coverage.

What risks does it protect against? Workers’ compensation insurance is designed to cover on-the-job injuries.

What costs does it cover? This type of policy can pay medical bills for injured employees and provide them with income replacement until they’re able to return to work.

6. Employment Practices Liability Insurance

Employment practices liability insurance is intended to protect your business from lawsuits stemming from claims relating to unlawful hiring or employment practices. If you’re sued, your policy could pay legal fees or settlements to claimants.

What risks does it protect against? Employment practices liability insurance can cover a range of situations, including lawsuits filed in connection with wrongful termination, discrimination, sexual harassment, and retaliation.

What costs does it cover? This type of policy can cover legal fees and settlements.

7. Product Liability Insurance

Product liability insurance protects businesses that manufacture or produce tangible products. Specifically, this coverage insures against claims for defective products that cause injury or bodily harm.

What risks does it protect against? Product liability insurance protects your business when someone sues you over a defective product that has caused injury, bodily harm, or death.

What costs does it cover? This type of policy can cover legal fees and settlements.

8. Commercial Auto Insurance

Commercial auto insurance works similarly to personal car insurance, but it’s designed to protect business vehicles. The type of coverage you need and the coverage limits required can vary from state to state.

What risks does it protect against? Commercial auto insurance protects you against damage related to accidents, vandalism, or theft of company vehicles.

What costs does it cover? This type of policy can cover repair costs, medical bills, legal fees, and settlements.

9. Commercial Umbrella Insurance

Commercial umbrella insurance is designed to cover risks not covered by other types of business insurance. For example, if you’re sued and you’ve maxed out the coverage limits of your general liability policy, an umbrella policy could help to fill the gaps.

What risks does it protect against? Commercial umbrella insurance can help you to minimize financial losses stemming from lawsuit settlements that exceed other business insurance coverage limits. 

What costs does it cover? This type of policy covers legal fees and settlements. 

10. Cyber Liability Insurance

Cyber liability insurance, also known as cybersecurity insurance, is designed to cover liability and property losses relating to the electronic transfer or sharing of data. This type of insurance is becoming increasingly important as more businesses are targeted by hackers and identity thieves online.

What risks does it protect against? Cybersecurity insurance can protect your business if any electronic or digital data is stolen or otherwise compromised.

What costs does it cover? This type of policy can provide liability protection related to lawsuits or cover the cost of upgrading or restoring cybersecurity systems.

How to Choose the Right Business Insurance Plan

Choosing the right business insurance is important because you don’t want to leave certain aspects of your business unprotected or overpay for coverage. Asking the right questions can help you better evaluate your needs.

Some of the most important questions to answer include:

  • How many employees does the business have?
  • Does the business have a physical location, or does it operate online only?
  • Is there any business equipment that will need to be insured?
  • What types of liability risks does the business face?
  • Are there any vehicles that will need to be covered?
  • What would happen if the business is interrupted by a natural disaster or another situation that’s beyond my control?
  • Will I need insurance to cover special situations? For example, will it be necessary to buy key person insurance if I plan to sell or transfer the business to my heirs?

It’s also a good idea to weigh other factors when choosing insurance options. For example, you’ll likely need to think about how much liability coverage is appropriate or what type of premiums your business can afford to pay.

Also, consider what types of coverage may be required based on state law or the industry in which you operate. For example, individuals who work in financial services may be required to have professional liability insurance.

Joining a professional association in your field may allow you to unlock business insurance discounts.

How to Get Business Insurance

If you’re ready to purchase business insurance, it helps to know what to expect. The process isn’t that different from buying other types of insurance. Here’s how to buy business insurance, step by step.

1. Assess Your Business Risk

The types of risk factors that affect your business can determine which types of business insurance you might need.

For example, say that you run an HVAC repair business. You have 10 employees, eight of whom drive work vans to customers’ homes or businesses. In that case, it would make sense to have a commercial automobile policy in place to insure those vehicles.

What if you have no employees and run your business solo? You may not need an auto policy if you drive your own vehicle for work and are covered by personal car insurance. And workers’ compensation coverage may not be necessary, either.

Looking at your business through the lens of risk can help you narrow the types of insurance coverage that may be appropriate and what you can do without.

2. Understand What’s Covered

By now, you should be familiar with the different types of business insurance. When putting together a policy, it’s helpful to know two things:

  • What’s covered
  • What’s excluded

You don’t want to be taken by surprise if you need to file a claim, only to find out that there’s a gap in your coverage. Reviewing the details of a business insurance policy with the help of an agent or broker can help you pinpoint any potential holes in your plan that could leave your business vulnerable.

3. Compare Quotes for Business Insurance

Many companies offer business insurance, and all of them price their policies differently. The main pricing considerations for business insurance include what you’ll pay in premiums and what you’ll shell out for a deductible, should you need to file a claim.

Providing as much information as possible about your business, including the number of employees, annual revenue, and value of business property, can help you get the most accurate insurance quotes.

Getting one quote is a good start, but it’s helpful to have other quotes to compare it with. At a minimum, it may be a good idea to get at least three quotes for business insurance so you have a better idea of the price range you’re working with.

If you’re buying multiple policies to cover different things, get quotes for each. You may want to take quotes for individual policies and compare them with pricing for bundled business insurance to see if bundling might save you any money.

When do I need business insurance?

Generally, you need to have business insurance if you’re concerned about the possibility of financial losses stemming from liability claims or other events. If you don’t have the proper insurance in place, you could take a sizable financial hit if you’re sued for damages. Business insurance may also be necessary if it’s mandated by law in the state where you operate.

Should I buy stand-alone policies or a bundled business insurance package?

If you only need one or two types of business insurance, then it could make sense to choose stand-alone policies. On the other hand, if you’re looking for more comprehensive coverage, then you may benefit more from purchasing a business insurance package or bundle. Buying bundled insurance potentially could be more cost-effective if you’re able to get multiple policies at discounted rates.

What types of business insurance would I need if I work from home?

Working from home doesn’t negate the need to have business insurance. At a minimum, it may be advisable to have general liability insurance in place. You also may want to purchase insurance to cover any business property that you use while working from home if it’s essential to your business operations.

The Bottom Line

Business insurance can be invaluable if you find yourself in a worst-case scenario and need to file a claim. Taking time to compare the different types of business insurance can help you determine which policy or policies are best suited to your needs. Once you know what coverage you need, you can take the next step and compare quotes from the best small business insurance companies.

Article Sources
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  1. Insureon. “Product Liability Insurance.”

  2. North Carolina Department of Insurance. “Types of Insurance for Your Business: General Liability.”

  3. U.S. Small Business Administration. “Get Business Insurance: Six Common Types of Business Insurance.”

  4. IRMI (International Risk Management Institute). “Business Income Coverage (BIC).”

  5. North Carolina Department of Insurance. “Workers Compensation.”

  6. IRMI (International Risk Management Institute). “Employment Practices Liability Insurance (EPLI).”

  7. North Carolina Department of Insurance. “Types of Insurance for Your Business: Automobile.”

  8. North Carolina Department of Insurance. “Types of Insurance for Your Business: Excess and Umbrella.”

  9. North Carolina Department of Insurance. “Emerging Coverages: Cyber Liability Insurance,” select “What might a Cyber Liability Insurance Policy cover for a business?”

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