Business Insurance: 6 Types to Consider

Business Insurance: What It Is and Types to Consider; The 6 different types of business insurance for companies to consider are workers' compensation, liability insurance, commercial vehicle insurance, property insurance, errors and omissions, and data breach insurance.

Susan GuilloryUpdated March 14, 2024

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Business insurance keeps your business protected from the unexpected, whether that’s a lawsuit or a natural disaster. It also limits the liability you have for contingencies, such as someone slipping and falling on your business property. But, different types of business insurance protect your company in different ways. Keep reading to learn more on how business insurance can protect your company, different types of business insurance, and how to choose the right business insurance for your business.

What Is Business Insurance?

While there are different types of business insurance, they all generally do one thing: protect your company. Paying a monthly or yearly premium for insurance can provide you with peace of mind, knowing that if your business property should experience loss or damage, those expenses will be covered by your insurance policy.

6 Types of Business Insurance for Companies to Consider

While there are many types of business insurance, we’re going to take an in-depth look at the following six types:

Workers’ compensation
Liability insurance
Commercial vehicle insurance
Property insurance
Errors and omissions
Data breach insurance

Workers’ Compensation

If you have employees, you may be required to have workers’ compensation coverage. If you have an employee who is injured in a work-related accident, this policy will cover medical expenses, rehab and retraining costs, and disability payments while your injured employee isn’t at work.Depending on how many workers you employ, workers’ compensation coverage is required in every state except Texas. Check your state’s requirements for more details.Costs also vary depending on your payroll and state, but as a point of reference, many businesses spend an average of $560 annually.

Pros and Cons of Workers’ Compensation

The obvious pros of having workers’ compensation coverage is that you won’t have to pay out of pocket for on-the-job injuries. And if your business is in a physically active industry, such as manufacturing, the risk for these types of injuries may be high.The major drawback applies to businesses that aren’t in physically demanding industries, because they’ll likely still be required to carry it for each employee, and this can add to payroll costs.

Liability Insurance

The next kind of insurance to consider is liability. There are actually several types of liability insurance, including workers’ compensation. Two other types of liability insurance include:

General liability insurance: General liability insurance, also called public liability insurance, protects you in the event of someone being injured on your commercial property. If a customer fell and broke her hand in your store, your general liability insurance would cover any legal fees if she sued you, as well as her medical expenses. The average cost of general liability coverage is about $500 a year for small businesses.
Product liability coverage: If you sell products, you might want to consider product liability coverage, which will protect you from paying out of pocket for any legal fees related to issues with your product, such as defects or malfunctions. Product liability may be included in general liability coverage. Bought separately, if you break out the cost, the rule of thumb is $.25 per every $100 of product sales.

Pros and Cons of Liability Insurance

Some companies require their vendors to have liability insurance. If you work with companies that do (or want to), having liability coverage can ensure you have more business opportunities.On the other side of the equation, costs for liability coverage can vary widely depending on the kind of coverage you’re seeking, how long you’ve been in business, your industry, and other factors. That can make it difficult to budget for the insurance ahead of time.

Commercial Vehicle Insurance

If you use a vehicle for your business, you’re required to have commercial vehicle insurance, just the way you need to have auto insurance for your personal car or truck. This will cover not only you, but also any employees you have who will drive the company vehicles.It’s important to note that having a personal car insurance policy will not cover your commercial vehicles.While the costs for commercial vehicle insurance vary depending on your coverage and how many vehicles you need to insure, for a policy limit of $1 million, the average cost is about $1,700 a year.

Pros and Cons of Commercial Vehicle Insurance

If you have commercial vehicles, commercial vehicle insurance is required. The main benefit is having peace of mind should you or an employee get into an accident. You’ll have coverage for medical expenses incurred from the accident, as well as for repair costs for the vehicle.The main drawback is the expense. And if you or an employee does get into an accident, your premium could rise, cutting even deeper into your profits.

Property Insurance

Whether you run a business located in commercial real estate or out of your home, having property insurance can cover damages to your property or loss of your property. This may include damage or loss caused by theft or natural disasters (but note that earthquake or flood coverage typically needs to be purchased as a separate policy).Even if you run your business out of your home, you may want to consider property insurance, possibly through a homeowner’s policy.Expect to pay around $1,000 a year for commercial property insurance.

Pros and Cons of Property Insurance

What would happen if your office caught fire and you lost all of your computer equipment? Without insurance, you would be stuck paying to replace all of that equipment. Property insurance means that, should the worst happen, you probably won’t have to go into debt to get back up and running after a disaster.The drawback is that property insurance doesn’t cover everything. If, for example, an employee trips and drops his laptop and breaks it, this may not be covered. And if you live in areas prone to earthquakes, you may not be able to file a claim for earthquake damages with a standard policy.Recommended: Business Rental Insurance and Why You May Need It

Errors and Omissions Insurance

If you’re in certain industries, like medicine, consulting, real estate, or law, one of the types of business insurance you may be required to carry is errors and omissions (E&O) insurance, also called professional liability insurance.This coverage can protect you in the event that you’re sued for malpractice, even if you weren’t negligent. Here’s an example: Let’s say you’re a project management consultant and your client misinterpreted the project plan, and as a result, incurred extra costs and delayed the project. The client sues you for those costs, but with E&O coverage, those costs would be covered. Costs may vary, but some policies can be found for under $800 a year.

Pros and Cons of Errors and Omissions

The major benefit here is protecting yourself. You’d probably like to think that none of your clients or patients would ever sue you. It does happen, though, so having E&O coverage will help ensure that you don’t go broke trying to cover legal costs if you’re sued for malpractice.On the other hand, it can be confusing to know what you’re getting with an errors and omissions policy. That’s why it’s imperative to read your policy documents carefully to make sure you understand exactly what’s covered.

Data Breach Insurance

How much thought have you given to data breaches at your company? You may assume that only large corporations suffer from problems like these, but in fact, almost one in three data breaches happens in a small business. If you store sensitive data on the cloud or on any kind of electronic device, this might be a type of insurance to consider. Data breach insurance (or cyber insurance, which may be a little more inclusive and expensive) may lower your risk of experiencing a breach by offering credit card monitoring services. If you experience a breach, some insurance policies will send a notification to your customers to alert them, cover costs to find the cause of the data breach, pay for a public relations consultant to restore your reputation, and/or cover legal costs if you’re sued as a result of the breach. Policies can vary quite a bit in what services they provide and what they pay for, so it’s important to read the fine print of any insurance policy you’re contemplating buying.Cyber insurance costs average $1,485 a year.

Pros and Cons of Data Breach Insurance

Recovering from a data breach could take months, if not years, and many companies have suffered from negative reputations as a result. Should you be the victim of a breach, you need to ensure that things can go back to business as usual as soon as possible, and data breach insurance can help you get there.The downside of data breach insurance is that your company might never experience a breach, and you might feel like the investment is wasted money. But then again, the purpose of insurance is to cover an accidental and to provide reassurance that if it happens, you’re going to be okay.Recommended: What Is Small Business Umbrella Insurance?

Choosing the Right Type of Business Insurance

Six major types of business insurance include workers’ compensation, liability insurance, commercial vehicle insurance, property insurance, errors and omissions insurance, and data breach insurance. Start with the policies that you’re required to have for your business, then consider whether you might need any of the others as protection against a worst-case scenario.There are many companies that offer a variety of business insurances, so shop around for the best policy and rate. You may find that an insurer provides discounts if you bundle more than one type of policy, so consider which company you can give all of your business to and see if you can save some cash.If you're looking for more capital to help protect and grow your business, Lantern by SoFi can help. With our online lending tool, you can receive a small business loan offer from one of our top lenders, all with no obligation to you.

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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