Just like health insurance and auto insurance provide personal protection in case of accident, illness or injury, business insurance protects you from unanticipated costs and potential reputational risks that could seriously impact your business, including accidents on your property, theft, lawsuits, and natural disasters. 

And yet research indicates that 40% of small business owners have no insurance at all, while a staggering 75% are underinsured. That leaves you, your business and your employees vulnerable to unforeseen financial expenses that could at best cripple your business’s growth and at worst prevent you from continuing to operate as a going concern.

But knowing the type and amount of insurance you need for your business can be challenging, especially with both state and federal regulations dictating certain kinds of coverage for specific industries, business sizes and various operating structures.

Below, we’ve outlined the six most common types of business insurance, as well as why each could be the right choice for your business:

Business Owner’s Policy: Typically, business owners will start with a Business Owner’s Policy, or BOP insurance. BOP insurance combines three of the most critical types of coverage into a single policy, including general liability insurance, commercial property insurance and business income insurance, to protect your company from all major property and liability risks. Depending upon where you purchase your BOP policy, you may be able to customize it to include additional coverage. Keep in mind, though, that BOP insurance is often sold at a premium for a greater cost than purchasing individual coverage plans.

General Liability Insurance: As the name suggests, general liability insurance is a fit for any business. It protects your company from financial loss resulting from claims that it caused property damage or bodily injury to customers, as well as from claims of copyright infringement, reputational harm and damage to rental property. Be aware, though, that this type of insurance does not cover injury to employees.

Commercial Property Insurance: Essential coverage for businesses with significant property and physical assets, commercial property insurance offers protection from financial loss due to damage to owned or rented property or equipment. Commercial property insurance covers losses due to fire, lightning, wind, and theft, but, importantly, not from floods or earthquakes, which require separate policies. 

Professional Liability Insurance: Also known as Errors & Omissions (E&O) insurance, this type of coverage protects you, your company and your employees in the event of a mistake in professional services, including negligence, inaccurate advice, misrepresentation, libel and slander. It’s important to keep in mind that it doesn’t matter if you’ve actually done something wrong or not; if a customer believes that you have, they can bring a lawsuit against you. Professional liability insurance helps pay the legal costs associated with your defense. 

Product Liability Insurance: If you’re in the business of manufacturing, wholesaling, distributing and/or retailing products, product liability insurance is a must. This coverage protects you and your company from claims that products you manufactured or sold caused property damage or bodily harm to a customer.

Home-Based Business Insurance: Even if you run your business out of your home, your homeowners insurance policy may not provide adequate coverage for potential losses that your business incurs, like on-site injury to a client or damage to business property. You can purchase home-based business insurance as an endorsement to your current homeowners policy or as a separate plan. 

Workers’ Compensation Insurance: If you have employees, it’s likely your state legally requires you to carry workers’ compensation insurance – without it, you could be susceptible to fines or even criminal charges. Workers’ comp offers benefits to your employees should they become sick or injured on the job and includes paying for medical bills, replacing lost wages, covering ongoing care and paying for funeral costs.

Key Person Insurance: A life insurance policy purchased by the business on the life of an individual critical to the business’s operational success, typically the owner/founder or a top executive. The company itself is responsible for paying the insurance premiums, and becomes the beneficiary in the case of the key person’s death. 

Buy/Sell Insurance: Similar to key person insurance, buy/sell insurance protects your business if you or a partner dies or becomes incapacitated and can no longer remain in his or her role. Not only does adequate Buy/Sell insurance minimize immediate financial risk to the remaining owner and the company itself, but it can also ensure the departing owner or their beneficiaries don’t take action against the wishes of the remaining owner.

Making Sure Your Business is Fully Covered

Determining the type of insurance you need is the first step, but it’s also critically important to ensure you have adequate coverage for your business. As we mentioned above, 75% of business owners are underinsured, which still leaves you and your business vulnerable to costs you’re not able to cover. 

Understanding the amount of coverage you need begins with knowing the value of your business. Once you know how much your business is worth, you can purchase enough coverage to protect it. But as your business grows, you may need to reassess whether your current policy is still sufficient. 

BizEquity’s online business valuation software enables business owners to generate accurate business valuations in less than an hour – for a fraction of the cost of a traditional, manual valuation – and offers suggested insurance coverage plans as well to help business owners ensure they’re fully protected.

To learn more about how BizEquity serves business owners, click here.