Business insurance basics are simple to state: insurance transfers some of the financial risk of running a business to a company that agrees to cover certain losses.
Business insurance basics: why coverage matters
A lawsuit, a fire or a stolen laptop can cost more than a small business can absorb. Insurance can help, within the limits of the policy. This article is general information, not insurance or legal advice. Policies differ, so read the details and ask a licensed agent about your specific situation.
- Insurance helps with certain losses only
- Policy limits and exclusions matter
- A licensed agent can advise you
Common types in business insurance basics
General liability coverage can help with claims of injury or property damage involving your business. Property coverage can help with damage to your building or equipment. Professional liability, sometimes called errors and omissions, can help when a client says your advice or service caused a loss. Workers’ compensation is usually required in many states if you have employees. Commercial auto applies to vehicles used for business.
- General liability
- Property coverage
- Professional liability
- Workers’ compensation and commercial auto
Are you required to carry coverage
Understanding business insurance basics includes knowing whether you are required to carry it. Requirements depend on your state, industry and contracts. Landlords, clients and lenders may require proof of coverage. Home-based owners should also check whether a homeowner’s or renter’s policy covers business activity, since many do not. Our guide on business licenses and permits and our legal basics checklist help you spot what else to confirm.
- Check state and contract requirements
- Ask if your home policy covers business use
- Confirm what your landlord or client requires
How to compare quotes
One of the business insurance basics is that price alone is a poor guide. Get quotes from more than one agent or company. Compare coverage limits, deductibles, exclusions and the total yearly cost, not only the price. Ask what is not covered, how claims work and how the premium can change. Be careful with anyone who pressures you to buy fast.
- Compare limits and deductibles
- Ask what is excluded
- Ask how claims are handled
Coverage and your legal structure
Business insurance basics also include how coverage fits with your legal setup. A legal structure such as an LLC may help separate personal and business liability in some cases, but it does not replace insurance. Our guide on LLC versus sole proprietorship explains the difference. Many owners use both a sound structure and the right coverage.
- Structure and insurance work together
- An LLC is not the same as coverage
- Review both with a professional
Where to get help with business insurance basics
Your state insurance department can answer questions about licensed agents and consumer rights. Free advisors at your local SBDC and SCORE can help you build a list of questions. The SBA guide to managing your business also covers insurance planning.
- State insurance department
- SBDC and SCORE advisors
- SBA management guide
Related reading on business insurance basics
- Legal Basics for Starting a Business: A Checklist
- Business Licenses and Permits: A Starter Checklist
- LLC vs. Sole Proprietorship: Setting Up Your Business Opportunity Correctly
- Business Funding Options: A Plain-English Guide for New Owners
- Business Credit Score: What It Is and How to Build It
- How to Open a Business Bank Account
- America’s SBDC small business advising
- SCORE free business mentoring
- SBA guide to managing your business
- USA.gov guide to starting a business
