App version: 0.1.0

Business Insurance: What It Is and Types to Consider

Editor’s note: At Lantern, we strive to help you make financial decisions with confidence. To do this, we occasionally feature content that includes information about our partners and their products or services. We do not provide, endorse, or guarantee any third-party product, service, information or recommendations—and our opinions are our own.
Susan Guillory

Susan Guillory

Updated March 9, 2021
Share this article:
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.
You probably have insurance for your car, your health, and your house. But did you realize that if you run a business, you also need one or more types of business insurance?Business insurance limits the liability you have for contingencies like, for example, someone slipping and falling on your business property. But different types of business insurance protect your company in different ways. In some cases, insurance for companies may be mandatory. So it’s important to familiarize yourself with the regulations in your industry that might require you to have a set amount of coverage, as well as with the different types of insurance that are available to you, whether or not they’re required.

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.

Six Types of Business Insurance for Companies to Consider

We’ll be reviewing six kinds of business insurance that you might want to look at. Note that some of these may be required for some businesses and that some are specific only to certain types of businesses. The six we’ll look at are as follows.
  • Workers’ compensation
  • Liability insurance
  • Commercial vehicle insurance
  • Property insurance
  • Errors and omissions
  • Data breach insurance
Below, we'll go over what each type of coverage entails, as well as the pros and cons of having the insurance for your business.

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. We’ve already discussed workers’ compensation, which is a form of liability insurance, but here we’ll look at two other common kinds.
  • General liability 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 this 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, this kind of insurance is required. The benefits include  having peace of mind since you’ll know that,  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 drawbacks are, of course, the costs. 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 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.If there’s any drawback, it’s 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.

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 delay on the project. The client sues you for those costs, but with E&O coverage, those costs would be covered. Costs may vary, but 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.This insurance isn't cheap. 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.On the other hand, 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 a possibility and to provide reassurance that if it happens, you’re going to be okay.

Choose the Types of Business Insurance You Need

Yes, there are a lot of types of business insurance! But ideally  you’re a bit clearer now on which might be most important to your company. 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 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.Check out your small business insurance options today.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612. SoFi Lending's NMLS number is 1121636. NMLS Consumer Access. SoFi Lending Corp. operates this Lantern website in cooperation with Even Financial Corp. ("Even"). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lenders' and/or partners' conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page.SOLC21011

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the President of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
Share this article: