Updated: Oct 7
The beauty of businesses is that they are reflections of communities, families, and individual passions. Big or small, every business is unique, and each comes with its own unique challenge and needs. This also means that every business requires a unique set of protections for its services and assets in order to operate with confidence, and that’s where insurance comes in.
We’re breaking down some of the essential types of business insurance for small businesses, what they typically cover, and when they may be right for your business. Let’s get started with the basics.
#1 General Liability Insurance (GL)
General liability insurance is the most common type of business insurance because it covers many of the most common kinds of accidents, regardless of what you do: slips and falls, spills, and copyright infringement, for example. This is typically the baseline insurance you’d need to be considered “licensed, bonded, and insured” and start building relationships with clients who trust your reputation.
What it covers: General liability insurance covers third-party claims of bodily injury, property damage, and personal and advertising injury.
Who needs it: Just about anyone. If you have clients or customers (and we certainly hope you do), then you interact with third parties. If you visit your clients’ homes or they visit your place of business, there’s a high chance that an accident could occur (and a lawsuit could follow). This is the kind of policy that every small business owner should have, even before you ever make your first dollar.
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Care, Custody, and Control (CCC) Coverage
CCC coverage is a feature available on some policies that should remind you how important it is to read up on business insurance and understand the ins and outs. For example, you’re a dog walker and you take a client’s dog to the park. The dog gets bitten, and now she needs medical attention. That would be covered under your general liability insurance, right? Wrong. Because the dog was in your care, custody, and control, it is generally excluded from the standard general liability policy. However, you can sometimes purchase an enhancement to extend your policy to properly cover your bases.
What it covers: Damages to property you handle in your business operations that is (1) not your own and (2) endemic to the performance of your service.
Who needs it: Anyone who handles clients’ property. The dog walker is a common example, but consider another. You’re installing a TV in a client’s home, and they’re standing close by to help you hang it level. What if you lost your grip and dropped the TV on your client’s foot, and the TV shattered in the process? Wouldn’t general liability insurance cover both problems? No. In this case, your general liability policy would cover the injury to the client’s foot (bodily injury to a third party), but it wouldn’t cover the TV repair, because the TV (non-owned property handled in performance of your services) was in your care. Tricky stuff, right? For this reason and so many more, it’s important to have coverage for property of others that you control while providing services.
Products and Completed Operations Coverage
Whether you perform a service, such as handymen or house cleaners, or produce goods, like a caterer, retailer, or artist, there is always some risk left even after the job is done. Products and completed operations coverage, added to a general liability policy, helps make sure that a mistake down the road can’t affect the overall health of your business.
What it covers: Property damage, bodily injury, legal defense costs, settlement payments, and claims arising from a business’s products or completed operations. Think allergic reactions, a permanent stain on a client’s expensive upholstery, the famous McDonald’s hot coffee case, or faulty construction on a staircase causing a serious injury months later.
Who needs it: Any small business, regardless of your product or service. Whether you have an inventory or a rate sheet, you likely need this coverage. Especially when you consider that injury or damage can happen as a result of your work long after you’re gone from the job site, you should want to protect your livelihood from a customer with an unfortunate reaction (physical or otherwise) to your work.
Now we’ve covered common physical risks that are posed when you work with third parties; let’s move on to covering other aspects of what you do.
#2 Professional Liability Insurance (PL)
Next, professional liability comes in to fill in the gaps left by general liability insurance in the basic functions of a wide array of small businesses. Think of it as “insurance for experts”: if your services include offering your expertise, skills, or knowledge to a client, you’re dealing in your client’s trust. And if they’re unhappy with the recommendation you provide, claiming that it caused them a financial loss, you could be liable to settle in court to rectify the problem. What it covers: Professional liability insurance covers damages arising from claims of negligence, as well as the investigation and legal defense costs related to those claims.
Who needs it: Again, just about anyone. “Claims of negligence” may seem vague, but a customer could allege negligence even if they’re just not happy with the results of your work. While general liability insurance protects the physical risks posed by your work, professional liability insurance protects the risk of errors in that work.
Together, general and professional liability insurance are often considered to work in tandem to provide businesses some of the most basic forms of coverage. Once you’ve got these two, you’re often ready to open for business! And whether you’re starting in your garage or in a rented space, as you grow, you’ll likely encounter new problems and risks that will also need protection. Let’s talk about some other types of insurance that are beneficial to growing businesses, starting with protections for your various materials.
#3 Inland Marine Insurance
Inland marine insurance is coverage for your stuff. Though the name may suggest that it only covers you if your work involves the water, inland marine is simply property insurance designed to protect any equipment made to be transported along with you as you provide your services.
What it covers: Damage to your equipment and rented or borrowed equipment in your care. If you own it and you break it, inland marine insurance is often the way you can get it replaced. Likewise, if you borrow a tool from a fellow carpenter or rent a tripod for a photo shoot, those items are in your care; if damage comes to them while you’ve got them, you could be liable to pay for their repairs.
Who needs it: Business owners who use equipment (so again, just about anyone) and are on the go. It’s especially useful when you consider that your personal items can be covered under an inland marine policy if you use them for work purposes: your personal camera, your computer, your expensive art supplies. It’s the kind of coverage that makes sense for a small business owner, as you’re typically getting your business started out of your home with the skills and tools you have around you!
#4 Commercial Property Insurance
Commercial property insurance is similar to inland marine insurance, but the big difference is that inland marine covers equipment that travels with you to perform your business services, and commercial property insurance only covers items if they are on your business premises. Inland marine insurance is considered “floating” coverage over you while you travel to client’s homes or event venues, and commercial property insurance would protect your equipment at your shop, studio, or showroom.
What it covers: Your building, furnishings, stock, and equipment while on your insured premises, signs on your premises, maintenance equipment, and business interruption due to direct physical loss to your insured premises. It’s important to remember that every insurer offers varying coverages under their policies, but in most cases, these are the types of coverage offered by commercial property insurance.
Who needs it: Anyone who rents or owns business space. When you’ve reached that point in the life of your business, you don’t want anything to stand in the way of your continued success. Imagine how hard you’ve worked and how much you saved in order to rent and furnish your studio, commissary, showroom, gallery or workshop. With all of the effort put into creating your perfect workspace, commercial property insurance keeps it protected.
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Business Interruption Insurance
Business interruption insurance is another important coverage under many commercial property policies for any business that wants to grow and sustain through tough times. The name really says it all: business interruption insurance protects you when your operations are faced with a rainy day. What it covers: Recouping lost income while business is down or compensating for unexpected costs, like temporarily relocating your operations because of direct physical loss or damage to your insured business premises.
Who needs it: This is especially relevant for business owners whose operations rely on a specific location, such as an office, shop, or studio. It stands to reason that if you only work in one location and that location is uninhabitable, you’ll likely be out of work more immediately than someone who works across different locations or travels to client sites. Either way, this is an important protection against the kinds of situations that are often entirely out of your control—fires, hurricanes, and floods. Business interruption coverage is also typically part of a commercial property policy or business owners policy (BOP).
#5 Commercial Auto Insurance
Some general liability coverages can be nuanced, but commercial auto is pretty straightforward: if your business owns a vehicle, you need commercial auto insurance. What it covers: Auto liability for injury and damage to others, auto physical damage, and medical payments. It’s usually very similar coverage to what you’d see on your personal auto insurance policy, but it covers accidents arising while operating an owned vehicle in relation to your business.
Who needs it: Small business owners who drive for work. In the same way that inland marine insurance covers damages to your personal items if you’re using them for work, commercial auto insurance can offer protection to your personal vehicle if you get in an accident on the way to a delivery, event, or consultation. This applies to you as the business owner and your vehicle, and it’s useful because driving your personal vehicle as part of your small business is incredibly common. But, if you rent vehicles or your employees drive their own personal vehicles in relation to your business, you should consider hired auto and non-owned auto insurance—available for liability and physical damage.
We’ve covered liability for nearly every type of property, equipment, or item, and there are just a few more types of insurance to discuss: coverages related to your people and the health of your business overall.
#6 Workers’ Comp Insurance
Workers’ comp insurance is typically the best-known form of business insurance. Like most forms of insurance, it’s meant to cover everyday accidents and incidents, and in this case, that protection applies to your valued team members. What it covers: Bodily injury from a workplace accident, repetitive stress injury, sickness, or the imposition of a disability on your employees.
Who needs it: Any business with employees. Workers’ comp insurance is required for businesses with employees in almost every state, so expect this to be one of your first insurance purchases, along with your general liability insurance.
#7 Business owners policy (BOP) insurance
We saved the most overarching for last: a BOP policy, or business owners policy. Now that you understand what each of the previous insurances cover, you can see how a BOP policy bundles them together in an effective way to serve as frontline defense for your business from a number of different angels. What it covers: BOP typically bundles together coverages for property damage and bodily injury (general liability coverages), damage to your premises (commercial property coverage), business interruption coverage, and some inland marine coverages. Depending on the insurance provider, your policy can include and exclude any number of things, but these are typically the core elements of a BOP policy. You can also add an enhancement to purchase hired auto liability coverage and non-owned auto liability coverage under a BOP policy.
Who needs it: While it may sound like it’s for any business owner, you typically have to operate at one stationary place of business in order to qualify for a BOP policy. As you can see, several of the coverages included most often pertain to work done on-premise, like commercial property and business interruption coverage. If you “go into work” at the same address every day, BOP could be the right place to start with insurance for your growing venture.
Clearly, there’s insurance for almost everything, and everything is worth protecting—from what’s listed here to other insurances, like cyber liability, accident, death and disability, travel, and more.
And no matter the type, when you’re shopping for new insurance to help launch your small business, it’s important to compare different insurance providers and bring all of the new knowledge you’ve gained to the table, so you can get to work with confidence.
Guest Authored by Terri Hitchcock, JD at Thimble
Terri is currently the Chief Insurance Executive at Thimble Insurance, and was previously a Principal and Director of the product design practice area with Perr & Knight, a major insurance consulting services firm. Her areas of expertise are reinsurance and insurance operations, contracts, compliance, product development, and underwriting, having provided such services to clients in the industry over the past 30 years.Terri graduated with a B.A. in English and French from the College of the Holy Cross. She received her JD from the University of Maryland School of Law.