Essential Insurance Types Every Small Business Needs
Starting a small business is exciting, but protecting it requires the right insurance coverage. Without adequate protection, a single lawsuit, accident, or disaster could wipe out everything you’ve built. Here’s what every small business owner should consider.
General Liability Insurance
What it covers: Third-party bodily injury, property damage, and advertising injury claims.
General liability is the foundation of business insurance. If a customer slips in your store, if your product damages someone’s property, or if you’re accused of slander in your marketing, this policy responds.
Who needs it: Every business that interacts with customers, clients, or the public.
Typical cost: $400-$1,500 per year for small businesses.
Professional Liability Insurance (E&O)
What it covers: Claims of negligence, errors, or failures in professional services.
Also called Errors and Omissions (E&O) insurance, this protects service-based businesses when clients claim your work caused them financial harm.
Who needs it: Consultants, accountants, lawyers, IT professionals, real estate agents, and any business providing professional advice or services.
Typical cost: $500-$3,000 per year depending on industry and revenue.
Commercial Property Insurance
What it covers: Your business property—buildings, equipment, inventory, furniture, and fixtures.
Whether you own or lease your space, commercial property insurance protects your physical assets from fire, theft, vandalism, and certain natural disasters.
Who needs it: Any business with physical assets, equipment, or inventory.
Typical cost: $500-$3,000 per year based on property value and location.
Business Owner’s Policy (BOP)
What it covers: Bundles general liability and commercial property insurance, often with business interruption coverage.
A BOP is typically more affordable than buying policies separately and is designed specifically for small to medium businesses.
Who needs it: Small businesses looking for comprehensive, cost-effective coverage.
Typical cost: $500-$3,500 per year.
Workers’ Compensation Insurance
What it covers: Medical expenses and lost wages for employees injured on the job.
Workers’ comp is required by law in most states if you have employees. Even in states where it’s optional, carrying coverage protects you from employee lawsuits.
Who needs it: Any business with employees (required in most states).
Typical cost: Varies significantly by industry and payroll—typically $0.75-$2.50 per $100 of payroll.
Commercial Auto Insurance
What it covers: Vehicles owned or used by your business for work purposes.
Personal auto policies typically exclude business use. If employees drive for work—even using personal vehicles—you need commercial auto or hired/non-owned auto coverage.
Who needs it: Businesses that own vehicles or have employees who drive for work.
Typical cost: $1,200-$2,400 per vehicle per year.
Cyber Liability Insurance
What it covers: Data breaches, cyberattacks, and related expenses including notification costs, credit monitoring, legal fees, and regulatory fines.
In today’s digital world, even small businesses are targets. A single data breach can cost tens of thousands of dollars.
Who needs it: Any business that stores customer data, processes payments, or relies on digital systems.
Typical cost: $500-$5,000 per year based on data volume and industry.
How to Determine Your Coverage Needs
Consider these factors when choosing coverage:
- Industry requirements - Some industries have mandatory coverage types
- Contract requirements - Clients may require specific coverage limits
- Asset value - Ensure property coverage matches replacement costs
- Risk exposure - Higher-risk operations need higher limits
- State laws - Workers’ comp and other requirements vary by state
Next Steps
- Assess your risks - What could go wrong? What would it cost?
- Check legal requirements - What does your state require?
- Get multiple quotes - Compare at least three insurers
- Review annually - Update coverage as your business grows
Protecting your business isn’t optional—it’s essential. The right insurance lets you focus on growth instead of worrying about what-ifs.
Related Guides
- Business Insurance Guide - Comprehensive business coverage overview
- Insurance for Small Business Owners - Coverage tailored for small businesses
- Insurance for Self-Employed - Solo operator coverage essentials
Data Sources
Business insurance information in this guide comes from NAIC (opens in new tab) , Insurance Information Institute (opens in new tab) , and industry reports. Learn more about our data collection methods on our Methodology page.
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