The Ultimate Guide to Small Business Insurance | Pie Insurance

About this guide

Owning a small business can be incredibly rewarding. You’re able to see customers satisfied with your product, watch your team members develop, contribute to the economy, work for yourself, and enjoy financial success. Of course, rewards like these don’t come without certain risks. Every business carries a unique set of liabilities—liabilities that can keep you on your toes (and maybe even up at night). Though this reality can be intimidating, when you take the time to learn about how small business insurance can work for your company, you can minimize these risks and maximize your success.

In other words, let’s figure out your small business insurance plan. That way, you can get back to work pursuing all the reasons you started a company in the first place.

Small business insurance helps protect you from the unexpected costs and liability of running your business. It can provide a safety net to help ensure your personal and business assets are protected from unexpected catastrophes.

In this guide, we’ll answer some of the most common questions small business owners have about business insurance. But please note: This guide is intended as an educational resource only. As laws and best practices can change, please refer to your state legislation and/or a trusted advisor for specific legal counsel.

Let’s go! Here are the questions and answers you’ll need to get off and running (and pursuing other more-exciting-than-insurance things).

Table of contents

About this guide

Do I really need small business insurance?

• Am I legally required to have it?
• What if I have an LLC?

Okay, what are my options?

• What are the most common insurance types?
  • Workers’ compensation insurance
  • General liability insurance
  • Commercial automobile insurance
  • Cyber insurance
• What other types of insurance should I consider?

What should I do?

• How do I know which insurance type(s) I need?
• Should I buy a package policy?
• How much should I spend?
• Where do I start?

Do I really need small business insurance?

Am I legally required to have it?

In some cases, you may very well be legally required to carry certain types of small business insurance. Small business insurance requirements vary by state, so visit your state’s small business website to learn the specific laws in your area. If you’re unsure about what types of insurance you are required by law to carry—as well as what types of optional insurance you should consider based on your particular business—consider enlisting the help of an attorney as business needs can be quite unique.

The U.S. government does require almost every business with employees to obtain workers’ compensation, unemployment, and disability insurance (we’ll discuss workers’ compensation later). Some states also require additional insurance, but again, laws vary by state. Remember: Your state’s small business website will list the specific requirements for your area.

What if I have an LLC?

The organizational structure of your small business—whether it’s a corporation, limited partnership (LP), or limited liability company (LLC)—does offer a limited amount of protection, but it typically only protects your personal property from litigation. Unfortunately, accidents, natural disasters, and lawsuits still have the potential to harm your business if you haven’t selected the appropriate additional coverage.

There are many situations that have the ability to negatively impact your business—that aren’t covered by an LLC structure. For example:

• You mixed personal expenses with business expenses.
• You personally injured someone.
• You did something irresponsible or negligent.
• You signed a personal guarantee for a loan.
• You didn’t deposit taxes withheld from employee wages.
• You did something illegal, such as committed fraud.
• Your customer slipped and fell in your office or shop.

In short (and scary terms), you can get sued for nearly anything, even if you’re not at fault. Impending litigation may mean you’ll need a lawyer, and you may also need public relations guidance if you or your company’s reputation is put at risk. To be safe, even with an LLC, you should get appropriate business insurance.

Okay, what are my options? 

What are the most common insurance types?

Small businesses often carry both general liability insurance and workers’ compensation insurance. Without at least this level of coverage, you may be required to cover any losses against your company. Commercial auto insurance is also typically required if your employees use company vehicles. And of course, with computer crime on the rise, cyber insurance is becoming an increasingly common insurance choice for small businesses.

These four types of insurance are among the more common types of coverage small businesses carry. However, depending on your small business risk, there are other types of insurance that may also be appropriate (they’ll be covered in a later section of this guide).

Workers’ compensation insurance

Workers’ compensation insurance, also called workers’ comp or workman’s compensation, is a state-mandated insurance program that helps provide medical, disability, survivor, burial, and rehabilitation benefits to employees who are injured or killed due to a work-related injury.

Workers’ compensation laws are called “no-fault” laws. This means an injured employee can receive care regardless of who was at fault for the incident. In exchange, team members give up the right to sue small businesses for on-the-job negligence due to a workplace incident. In nearly all states, and with few exceptions, businesses are required by law to carry workers’ compensation insurance, and fines and penalties can be severe for non-compliance.

This type of insurance may cover:

• Injury – Workers’ comp insurance helps cover related medical care and economic losses if an employee becomes injured in the workplace.
• Disability – Workers’ comp insurance helps provide wage replacement if a team member is injured in the workplace and cannot return to work. The common level of wage replacement accounts for two-thirds of the injured employee’s wages.
• Death – Workers’ comp insurance helps provide financial support to the impacted family if an employee dies in a work-related incident.

General liability insurance

General liability insurance helps protect your small business from claims involving property damage and bodily injuries. Also called business liability insurance and commercial general liability insurance, this type of coverage helps cover costs such as attorney fees and medical expenses for incidents involving your services, products, or operations. General liability insurance can also cover advertising and personal injury claims for issues including libel, slander, and copyright infringement.

General liability insurance is one of the most common types of insurance that businesses carry. Typically, small business owners must show proof of insurance to enter into commercial leases and customer contracts. If your small business sells products, offers services, rents space, or advertises online, you likely need general liability coverage. And whether your business serves customers on job sites, at their property, or at your own location, general liability coverage can also help protect your valuable commercial and personal assets.

This type of insurance may cover:

• Bodily injury – General liability insurance helps cover legal costs and medical expenses if a customer or non-employee claims they were injured on your business property.
• Property damage – General liability insurance helps with the costs of repairing or replacing a third party’s property that was damaged by your business activities.
• Reputation harm – General liability insurance helps with legal costs related to claims of slander and libel against your small business.
• Product liability General liability insurance helps with costs if a customer claims a product of yours caused harm or injury.
• Advertising injury – General liability insurance helps with expenses associated with claims of damage due to your advertising.

Commercial automobile insurance

Commercial auto insurance helps protect your small business from liability and physical damage related to your company’s automobiles. If you use your work vehicles to make deliveries, haul equipment, convey clients, or run errands, you may need appropriate commercial vehicle coverage. From company cars and work vans to utility vehicles and box trucks, insuring all of your company’s vehicles means you’ll be better protected from unexpected incidents that could harm your employees, your property, or a third party.

Commercial automobile insurance helps cover bills if an employee or a third party experiences injury or death from a vehicle. It helps your employees’ families by covering lost wages and medical expenses. It can help protect your business from accident-related lawsuits.

This type of insurance may cover:

• Auto liability – Commercial auto insurance helps protect your company from lawsuits for property damage or bodily injury caused by an accident involving an insured vehicle.
• Physical damage – Commercial auto insurance helps cover damage to vehicles owned by your business. This can include comprehensive coverage for issues like hail, theft, vandalism, and collision coverage in the case your vehicle overturns or collides with an object.
• Uninsured/underinsured motorist – Commercial auto insurance helps protect your covered employees if they are injured in a hit-and-run accident or by a driver who does not have adequate insurance.
• No-Fault – Commercial auto insurance helps pay for medical bills, loss of income, and other expenses—regardless of who is at fault. No-fault coverage is also known as personal injury protection (PIP) coverage and is required in nearly twenty states.

Cyber insurance

Cyber insurance helps protect your small business from damage, liability, and recovery costs in the event that your computer system or electronic data has been compromised. Alternatively referred to as cyber liability insurance, cyber risk insurance, or cybersecurity insurance, this type of coverage helps protect your employees and your customers from computer hackers and other electronic threats.

If your small business handles any sensitive information, such as your employees’ driver licenses and/or social security numbers or your customers’ credit cards and/or bank account information, you could be a target for criminals. Cybercriminal activity is only increasing over time, and adding appropriate cyber insurance coverage is one key step in guarding your valuable and confidential information. This type of insurance is specifically designed to help protect your small business for issues like stolen or exposed computer data, employee or customer identity theft, cyber extortion, data recovery, and more.

Types of coverage in cyber insurance policies vary based on your small business needs but may include first-party and third-party coverage. First-party coverage helps you with expenses if your data is stolen or your network is hacked.

This type of insurance may cover:

• Recovery – Cyber insurance helps cover the cost to restore lost data due to damage, theft, or corruption.
• Notification – Cyber insurance helps cover the cost of letting your employees, customers, and governmental regulators know about a breach.
• Credit monitoring – Cyber insurance helps provide services that monitor credit for affected parties.
• Forensics – Cyber insurance helps cover expenses for legal and forensic services related to a cyber event.
• Crisis management – Cyber insurance helps cover the cost of public relations and advertising to reestablish your company’s standing after a cyber event.
• Business interruption – Cyber insurance helps cover lost income and/or expenses to keep your business running.
• Cyber extortion loss – Cyber insurance helps pay ransom, damages, and legal expenses.

Third-party coverage helps protect your business if you’re sued in the event of cybercrime.

This type of insurance may cover:

• Network privacy – Cyber insurance helps protect your business if you’re sued for not adequately protecting private, sensitive data that belongs to your employees or customers.
• Network security – Cyber insurance helps protect your business if you’re sued for action or inaction surrounding a data breach or network access issue due to a hacker, virus, or malware.
• Errors or omissions – Cyber insurance helps resolve coding mistakes and software errors related to any professional services you provide.
• Electronic media – Cyber insurance helps in the event you are sued for slander, defamation, libel, infringement, or other issues related to data you publish on the internet.

What other types of insurance should I consider?

There are also other kinds of insurance that can be catered to your specific small business needs. These can even be bundled together with traditional insurance types into what is called a business owner’s policy (we’ll discuss this in a separate section). Options for alternative types of small business insurance are extensive but include:

• Professional liability insurance is sometimes referred to as errors and omissions (E&O) insurance. This type of insurance is important to consider if you offer services that involve representing the needs of others, making recommendations, providing advice, designing goods, or delivering clinical care. In this case, you need protection from being sued by clients, customers, or patients who claim that you failed to perform your job properly and have harmed them in some way.
• Commercial umbrella insurance can provide coverage beyond your other liability coverages. This type of policy is important in the case of unusually high losses—when the policy limits of one of your other policies may be maxed out.
• Directors and officers (D&O) liability insurance helps protect directors and officers of corporations or not-for-profit organizations if there’s a lawsuit alleging that they managed the business or organization without regard for the rights of others. If applicable, this policy will pay any judgments for which you’re legally liable (up to the policy limit), as well as legal defense costs.
• Employment practices liability insurance (EPLI) pays damages for which an employer is legally liable when he or she violates an employee’s civil or other legal rights. If applicable, this policy also covers legal defense costs, which can be hefty even if there’s been no malice on your part.
• Terrorism insurance covers losses attributed to acts of terror. Insured by private insurers, terrorism insurance is reinsured by the federal government under the Terrorism Risk and Insurance Act (TRIA), which was passed in 2002. Certain stipulations apply and policies vary.
• Industry-specific insurance depends on what type of business you operate. Examples include insurance to cover equipment for gyms and spas, product recall coverage or spoilage insurance for food and beverage businesses, or builders’ risk insurance for construction businesses.

What should I do?

How do I know which insurance type(s) I need?

The types of small business insurance you need depend on the type of business you own and the number of people you employ. The location of your company is also a factor, as small business insurance coverage requirements vary from state to state. When buying small business insurance, here are some questions to consider (and discuss with you trusted legal advisor):

• Where is your business located?
• Do you have employees?
• How many employees do you have?
• Do you create and sell a product to customers?
• Do you offer a service to customers?
• Do you have a location that customers or patrons visit?
• Do you have a warehouse?
• What type of hazards do your employees face?
• Do you have one or more company vehicles?
• Does your business face unusually high cybersecurity risks?
• Do you deal with confidential client information?

To ensure that you are adequately covered, provide your legal advisor or insurance agent with a list of all your company’s assets, including property, equipment, and inventory. An expert familiar with the specific risks of your industry can work with you to choose the right amount and types of insurance.

Should I buy a package policy?

Your insurance carrier may offer a package policy that combines several different coverages into one single contract. The benefit is that you’ll get a broad variety of coverages at a price that’s typically lower than if the same policies were purchased separately. The most common version of a package policy is the Business Owner Policy (BOP).

How much should I spend?

The cost of your small business insurance package will vary, of course, by the type of coverage it includes. Additionally, the cost of your small business insurance types will depend on a variety of factors within each of them. For example, a sole proprietor with an online retail business will typically pay less than a multi-state mining company with many employees. Businesses in lower-risk industries will pay less than those in other types of industries because they are less likely to suffer losses.

There are several factors that can affect the amount you’ll pay for a small business insurance policy, including:

• Number of years in business
• Location
• Legal structure (corporation, LLC, LP, sole proprietorship)
• Products or services
• Assets (buildings, vehicles, equipment, and supplies)
• Revenue
• Size (number of employees, payroll)
• Industry
• Loss history

Each of these risk factors has an associated cost based on analytics and historical trends. The cost of your policy may fluctuate over time as financial conditions change both within your company and within the insurance market.

Where do I start?

Our recommendation? Start with Pie.

Pie Insurance provides workers’ comp exclusively to small businesses—meaning we can save small business owners up to 30%. Not only is workers’ comp insurance important for the health of your business and employees, but it’s also legally required in most states. Learn more about workers’ compensation or dive right in and get a quote in three minutes. It’s as easy as pie.

Thanks for reading our educational resource! Any above reference to a specific company or product is meant for educational purposes only and is not specifically endorsed by Pie. If you’re a small business owner, see more small business resources or get a workers’ compensation quote in 3 minutes.