Liability insurance for small businesses helps protect companies from financial harm if they cause injury, damage or loss to others. It’s often required by leases, business loans or licensing agreements.
All major insurers sell it, but Nationwide is our pick for the best because of its wide selection of add-on enhancements that offer extra coverage at an affordable rate for many small businesses. It also offers a business owners policy that packages liability and property insurance.
General Liability Insurance
A general liability policy protects your business from claims that you or your employees caused bodily injury or property damage, and it also covers advertising injury (such as a misprint in a brochure). This is one of the most common types of small business insurance. You may be able to get this type of coverage as part of a business owner’s policy (BOP), which bundles liability and property coverage, or you might purchase it separately.
If you own a business with a lot of assets, you might need to buy more than one policy. For example, a restaurant with expensive furniture might need a commercial property policy to cover the costs of repairs or replacement. Buying a BOP is typically cheaper than buying the same coverage as separate policies.
The average cost for a small business to insure itself against liability claims is about $57 per month, according to Insureon. However, the cost can vary widely based on a few key factors. The industry of the business, for instance, has a big impact on rates. High-risk industries like construction or garages usually pay more for this type of protection than do lower-risk businesses, such as graphic design firms.
The size of the business’s payroll and its annual revenue are also important. The bigger the company, the more likely it is to have an accident that could lead to a large financial loss. Lastly, you should consider whether to purchase a claims-made or an occurrence policy.
Business Owner’s Policy (BOP)
Designed with small businesses in mind, BOPs bundle general liability and commercial property insurance into one policy to save money (compared to purchasing these policies separately). Generally speaking, insurers consider a business’ size and the type of operations to determine eligibility.
Eligible companies are typically categorized as having low risk profiles and minimal coverage needs. These include small businesses with fewer than 100 employees and those with less than $1 million in revenue.
For the property portion of a BOP, many businesses choose a limit of between $1 million and $2 million per occurrence and between $2 million and $4 million total during the lifetime of the policy. The value and type of property to be insured also impacts cost, as does the industry and claims history.
Additionally, certain optional coverages may be added to a BOP for an additional premium. These may include coverage for copyright infringement, liquor liability and employment practices liability. However, a BOP does not cover workers’ compensation or automobile insurance—for those policies, you need separate coverages.
Commercial Auto Insurance
Businesses that regularly use cars, trucks or vans to conduct business need commercial auto insurance. The policy protects the company’s vehicles, drivers and cargo. This type of coverage is typically separate from personal auto policies and may include higher limits for accidents. Contractors, landscaping and construction businesses that use pickup trucks, vans or SUVs to haul tools and equipment are common types of companies that need this insurance. Transportation services, such as taxis and limousines that transport passengers, also require this type of insurance.
Almost every state requires business owners to carry this type of insurance. However, many small business owners and employees use their own personal vehicles for work-related reasons, too. Personal auto policies typically exclude business-related driving, leaving the business responsible for damages if they get into an accident. Commercial auto insurance provides liability protection for those errands, too.
Business auto insurance costs vary by industry and vehicle. A general rule of thumb is that it costs more than personal auto insurance, but less than a BOP. A BOP usually bundles general liability and commercial property insurance into one policy, which can save a company money over purchasing each of these policies individually. Some business owners may be able to lower the cost of this type of policy by adopting safe driving practices and increasing deductibles.
Workers’ Compensation
The most common business insurance for small businesses, workers’ compensation covers the cost of medical care and lost wages for employees who are injured on the job. It also includes death benefits and disability benefits. This type of coverage is mandatory in most states for businesses with employees.
A workers’ comp claim can cost your business a lot of money, and many small business owners don’t have the resources to pay for these claims out of their own pocket. A workers’ compensation policy transfers this risk to the insurance company, which pays out if an employee is injured on the job.
There are many other types of business insurance that can protect your small business. For example, professional liability insurance (also known as errors and omissions insurance) may cover claims for financial loss due to unsatisfactory work. Commercial auto insurance is required in most states for businesses that own vehicles, and it can help cover legal bills, medical expenses, property damage, and more. And finally, cyber insurance can protect your small business from the cost of data breaches and other cybersecurity threats. If you have questions about which business insurance your company needs, talk to a trusted advisor at ADPIA. Our licensed insurance professionals have years of experience helping businesses like yours protect themselves with the right policies.
