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9 types of insurance every small business needs

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Did you know? Roughly 40% to 60% of small businesses never reopen their doors following a disaster, according to FEMA.2

4. Professional liability

Who needs it: Any business that provides advice or professional services.

Professional liability insurance is also known as errors and omissions (E&O) insurance. It protects a business from the cost of defending negligence lawsuits and other claims that the professional advice or services you provided (or failed to provide) caused a customer financial harm.

Every business that provides advice or professional services can make a mistake, and a customer can sue you even if you've done nothing wrong. That's why some states require certain types of professionals, such as accountants and lawyers, to carry professional liability insurance. However, even if this coverage is not required, if you provide advice or services to customers, it's a good idea to ask your insurance advisor about this coverage.

5. Product liability

Who needs it: Any business that manufactures or sells physical products.

Product liability insurance protects a business from claims if a product causes injury or other damage to a third party. For example:

  • An apparel company could use a dye in its clothing that causes customers to break out in a rash
  • An electronics manufacturer could produce products that malfunction and start a fire

Any business that manufactures or sells products should have product liability to cover legal fees, medical costs, and other damages that can result from a product liability lawsuit.

6. Commercial auto

Who needs it: Any business that owns one or more vehicles — and any business where an owner or an employee uses their personal vehicles extensively for work.

Most business owners are familiar with personal auto insurance policies required for their own vehicles. Commercial vehicle insurance is similar and covers physical damage and liability coverage for vehicles owned or used by a business – from company cars to commercial trucks, vans, and utility vehicles.

If your business owns any vehicles – from a single car to a large fleet of trucks – you need commercial auto insurance. While the coverage is similar to that of a personal auto policy, many personal auto insurers will exclude coverage for vehicles used for work.

7. Business interruption

Who needs it: All brick-and-mortar businesses that depend heavily on their location and the physical assets inside it. Home-based and online businesses may also consider business interruption insurance if an unforeseen event could threaten their business.

Business interruption insurance helps you pay bills, replace lost income, and cover payroll when an unforeseen event — such as a theft, vandalism, fire, wind, falling objects, hurricane, tornado, or other disaster — forces your business to close temporarily.

For example, say a fire destroyed your office space. Your commercial property insurance might cover your lost furniture and equipment, but how long would it take to get up and running at a new location? Business interruption can cover lost profits and other expenses while you move or rebuild.

8. Cyber liability

Who needs it: Any business that maintains personally identifying information about customers on a computer or in the cloud.

These days, many small businesses maintain a trove of information on their customers. The names, addresses, medical histories, bank account information, and credit card numbers you keep are a target for hackers. In the event of a breach, you might face substantial legal costs and the cost of offering identity protection services to affected customers.

Cyber liability, also known as data breach insurance, helps cover these costs if a cyber attack affects your business. If you maintain the personally identifying information of your customers on a computer or in the cloud, you need cyber liability insurance.

9. Employment practices liability

Who needs it: Any business that plans to hire at least one employee.

Employment practices liability insurance (EPLI) provides coverage for claims made by employees alleging discrimination, wrongful termination, harassment, and other employment-related issues.

From the moment you interview a potential employee, your business is at risk of an employment claim, so any business owner planning on hiring at least one employee should consider purchasing this valuable coverage.

Choosing the coverage for your business

While the list above may seem intimidating, many of these policies can be bundled into one. Insurance companies often offer policies that combine several types of protection into a Businessowners Policy (BOP) or Commercial Package policy.

Your insurance needs are as unique as your business, so the cost of buying these coverages varies depending on your industry, where you're located, and the specifics of your business. Sit down with your insurance advisor to figure out which types of insurance you really need. Hopefully, you'll never have to use it. But if something unexpected happens, you'll be thankful for the coverage.

Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. SBA Office of Advocacy, “Small Business Facts", June 2012, accessed August 5, 2019. Back
  2. FEMA, "Make Your Business Resilient", September 2, 2015, accessed August 5, 2019. Back