Small Business Insurance: Getting Essential Coverage Without Overpaying

By Nick Mann 🔹

Operating any small business comes with a certain amount of risk. However, some industries are inherently riskier than others. When choosing small business insurance, you want to find essential coverage that protects you against unforeseen issues, but you don’t want to overpay for what isn’t truly necessary. 

In this post, we’ll explain how to find ideal coverage, specifically for consultants providing services, online stores, and manufacturing businesses.

Common Types of Small Business Insurance

Small business insurance is a wide umbrella that covers a lot of areas. But here are some of the more common types of coverage you see across the board and that you should familiarize yourself with. 

General Liability Insurance

This is perhaps the most common and is considered a must for many companies. With it, risks like customer injuries, property damage, and negligence are covered, providing peace of mind. 

Business Property Insurance

Also known as commercial property insurance, this involves covering physical assets in a brick-and-mortar business location. Examples can include your business property, equipment, and inventory.

Professional Liability Insurance 

Also known as errors and omissions insurance, this helps protect you from lawsuits that stem from negligence, even if you’re not at fault. 

Workers’ Compensation Insurance

This covers expenses that occur due to work-related injuries or illnesses that employees experience. Examples can include medical bills, lost wages, and rehabilitation costs. If you have employees, you may be required by law to have workers’ compensation insurance. 

Just note that requirements vary widely by state, and for many states, you have to have more than four employees to be required to have worker’s comp. You can get a full rundown in this NFIB resource. 

Commercial Auto Insurance

As the name implies, this provides coverage for vehicle accidents, damage, or theft. If your company frequently uses vehicles (say driving to meet with clients for consulting services), it’s important to have commercial auto insurance.

Data Breach Insurance

If your company suffers a data breach that leaks sensitive customer information, this helps cover the costs. 

How to Determine Your Small Business’s Insurance Needs

Again, the goal is to find the right insurance coverage that keeps you protected without going overboard and purchasing what isn’t truly necessary. So how do you do that?

First, check the legal requirements in your state. For example, many states mandate that businesses have workers’ compensation insurance. We suggest starting there to ensure you have the requisite coverage to do business while staying legal. 

Source: Trusted Choice

Next, evaluate your business’s overall risk level and the specific areas where you’re most vulnerable. If you’re running an online store, for instance, you may not need to worry about commercial auto insurance. However, data breach insurance would likely be vital because you’re handling sensitive customer payment information. 

Finally, check out what types of small business insurance are considered to be the standard in your industry. Do the vast majority of businesses have a particular type of insurance? If so, there’s a good chance you’ll want it as well. 

Conversely, do only a small percentage of businesses in your industry have it? In that case, it’s probably not necessary. 

How to Choose Essential Coverage

As a rule of thumb, most small businesses will want to have general liability insurance, as this should protect you against a wide variety of risks. Regardless of your industry, this is often well worth the investment. 

If you operate a brick-and-mortar business and have employees or customers/clients on-site, this will cover you if someone gets injured or your property is damaged because of negligence. And if you run an online store, you’ll usually still want general liability insurance if you’re ever sued by a customer. 

The bottom line is that general liability insurance is a “foundational coverage” that nearly every business should have. 

If you own or rent a building or have equipment or inventory on-site, you’ll typically want business property insurance. This will protect your physical assets in the event of damage, destruction, or theft. 

Professional liability insurance is important if you have a skills-based business, where your skills are a core part of your offerings. For example, if you provide consulting services where you advise clients, you would be the perfect candidate for this type of insurance. 

And if you have employees, workers’ compensation insurance is important (and often legally required) to have. But again, this is only required by many states once you have more than four employees. 

As for commercial auto insurance, you’ll only need this if driving vehicles is necessary for conducting business. 

When it comes to data breach insurance, any business that stores sensitive customer data and is reliant upon technology can often benefit from it. This is especially important in heavily regulated industries like finance. 

To recap:

• Nearly every business can benefit from general liability insurance

• Those who have a physical location can benefit from business property insurance

• Having professional liability insurance can be helpful for skills-based businesses

• Workers’ compensation insurance is important (and often required) for small businesses with employees

Therefore, these are the four main types of coverage we suggest considering initially. 

Commercial auto insurance and data breach insurance are two additional types of coverage to look into, but the need for having them isn’t as widespread as the four we just mentioned. 

Tips for Saving on Small Business Insurance

Here are three suggestions to ensure you don’t overspend. 

One, be realistic about your risks. Look at all the angles with a thorough risk assessment, and be honest about what you truly need. If you feel that the cost of a particular type of business insurance outweighs the benefits, then it’s probably best to skip it. Remember, you can always add it later on if your situation changes or you have more money to funnel into insurance. 

Two, routinely review your needs. For instance, maybe you can get by initially with bare-bones coverage like general liability and business property insurance. But after scaling up and hiring several new employees, you may need to increase your coverage and add workers’ comp or other policies. The point here is not to treat insurance as a one-off type of deal, but as something that’s continually evolving along with your business. 

Third, bundling coverage with one provider can often lead to considerable savings, while also reducing paperwork. The specific savings can vary, but it can be as high as 25% in some cases. Therefore, it’s usually best to stick with one insurance provider if possible. 

Getting Input from the Cove Community

It’s always helpful to get advice from professionals who know the ins and outs of small business insurance. If you’re new to the process and want input from others with firsthand experience, you can connect with the Cove community for insights. 

Some Cove members have experience managing business insurance for manufacturing, consulting businesses, and online stores. This makes it a valuable resource for getting information on small business insurance and similar topics. Beyond that, you can use Cove for networking, collaborating, learning, and marketing — all while having a built-in support system. 

You can learn more about how Cove works here. 

About the Author

Nick Mann is a freelance writer/content strategist focusing on business, marketing, finance, and tech. Through his content, his goal is to help small businesses generate quality leads to grow and thrive.