Small business insurance: costs, coverage, and options for 2025

Published Wednesday 26th February 2025

The main points

• Insurance protects your small business from financial risks like lawsuits, property damage, and employee injuries.
• Different policies deal with specific types of risks. For example, general liability insurance protects you from lawsuits related to injuries on your premises, while professional liability covers you against damages claims related to professional services you provide to clients.

Choose your coverage based on your situation and the legal requirements for your industry. An insurance broker can help you find the best products for your needs.

Table of Contents

• What is small business insurance?
• Types of insurance for small businesses
• Industry-specific insurance needs
• How much does small business insurance cost?
• How to choose the right insurance for your business
• FAQs about small business insurance

What is small business insurance?

Small business insurance is any insurance policy that protects your small business from financial threats. The right coverage protects your business's assets and reputation.

Different types of policies protect small businesses from lawsuits, property damage, workers' compensation claims, cyber threats, operational risks, and other threats.

For example, if someone sues you after slipping and falling in your business, your small business liability insurance covers the claim. Or if one of your employees is injured on the job, your worker's comp insurance covers their lost wages and medical bills.

Types of insurance for small businesses

Here are the usual types of cover your business may need.

General liability insurance

General liability insurance for small business covers most legal claims, including personal injury lawsuits (when someone gets injured at your place of business, for example) and property damage caused by your employees.

Professional liability insurance

Also called errors and omissions (E&O), professional liability insurance protects providers of professional services (such as legal, medical, accounting, and consulting services) from claims of negligence or loss related to services they provide.

Worker's compensation insurance

If your employee gets hurt on the job, workers' compensation policies cover their lost wages and medical expenses.

Property insurance

Property insurance covers your property from theft, fire, and most natural disasters. You need this coverage if you own or lease commercial property.

Small business health insurance

Health insurance helps cover medical bills for you and/or your employees.

Although businesses with fewer than 50 full-time-equivalent employees don’t need to provide health insurance, it helps your business compete in the job market. You can get health insurance directly from an insurer, or through the Small Business Health Options Program (SHOP), which may also allow you to claim a tax credit.

There are other insurance products that suit specific types of businesses and industries – see [link]industry-specific insurance[link] below.

An insurance specialist can help you choose the right policies for your business so you’re protected against the risks you face without paying for coverage you don't need.

Industry-specific insurance needs

Often, your industry dictates the type of coverage you need.

Almost all businesses need general liability insurance and all employers need workers' comp. But beyond those two essentials, the options vary between industries.

Consider the following industry-specific insurance needs:

Construction – coverage for heavy equipment, and builder's risk insurance to protect against delays.

Retail – property insurance that includes coverage for inventory from theft or damage due to fire or natural disasters.

Healthcare – malpractice insurance, which is a specific type of professional liability coverage.

Businesses that store lots of customer data – cyber liability insurance, which protects against claims due to data breaches and cyber attacks. Once it was mainly IT companies, banks, and financial services firms that got cyber liability insurance, but now all kinds of businesses, including ecommerce businesses that collect and store customer data, recognize the need to have it.

Food service – a business owner’s policy, which includes both property and liability coverage, protects restaurants, cafes, and other food service establishments from threats unique to their industry, like spoiled food, malfunctioning equipment, liquor liability (bodily or property damage by intoxicated patrons), and interruptions to business income.

To make sure you’re covered, find an insurance broker with dedicated experience in your industry. Consider working with a specialist who can help you understand your risks and obligations, and choose a plan that covers both.

How much does small business insurance cost?

Insurance costs vary quite widely. It depends on your industry, location, the type of policy, and other factors.

Small business insurance cost factors

• Type of coverage – health insurance, for example, tends to be pricier than general liability.
• Business size – large businesses often face higher rates than smaller businesses.
• Industry – construction companies, for example, usually pay more for workers' comp than companies in industries with fewer injuries.
• Location – areas with higher risks have higher insurance rates.

Choose the right insurance for your business

With so many options, finding the right coverage can be challenging. Keep these tips in mind as you narrow in on a policy.

Review legal requirements

Find out which types of policies are legally required. For example, generally all states ( require employers to carry workers' compensation coverage.

Evaluate your risks

Identify your business's specific risks and make sure you’re covered for them. For example, even if you run a remote business, you may want to have commercial property insurance to cover any company owned assets (such as laptops) that are being used by employees remotely.

Compare policies and providers

To get the best value, look at policies from different insurers and compare coverage options, excursions, and premiums.

Tailor coverage to your needs

Review your policies carefully to make sure they address your risks, without including any unnecessary coverage.

Consult an expert

Talk with other business owners or insurance brokers for more detailed information about your coverage options and needs.

Here’s a little case study to illustrate how insurance needs change as your business grows:

You’re opening a cafe. You rent the space, and your landlord asks you to carry property insurance. You also decide to get general liability insurance in case a customer spills a coffee, slips and falls, and brings a lawsuit against you. Eventually, you hire your first employee, and you obtain workers' compensation coverage in case they get hurt on the job. After a while you decide to start hosting concerts, and you take out event insurance to protect yourself from unexpected cancellations.

FAQs about small business insurance

What happens if I don’t have insurance for my small business?

If you’re not insured, you’ll probably end up paying out of your own pocket for legal claims, employee injuries, and damages due to disasters. You may also face fines.

Can I change or cancel my business insurance policy?

Yes – you have the right to cancel or change most insurance policies at any time.

What is a business owner’s policy (BOP), and should I consider it?

A BOP combines general liability and property insurances. Bundling these two coverage types helps you to save money, and it improves your coverage.

Are there tax benefits to buying business insurance?

Yes – business insurance is a deductible business expense. The amount you pay for premiums and deductibles directly reduces your business income and, therefore, reduces your tax liability.

How does insurance protect me from lawsuits?

Liability coverage protects your business if someone brings a lawsuit against you. For example, professional liability coverage protects you from being sued by clients who claim to have lost money as a result of your professional advice.

Does small business insurance cover natural disasters?

Yes, usually. Most property insurance covers natural disasters, except for floods. You can obtain flood insurance through the federal government's National Flood Insurance Program (NFIP).

Do I need cyber liability insurance for my small business?

It depends. If you store lots of sensitive customer data, you should consider cyber liability cover. These policies can also help cover losses from tech-related disruptions, such as a down website.

What’s the difference between general liability and professional liability insurances?

General liability policies cover general risks like personal injury lawsuits. Professional liability policies are specifically for claims related to your professional advice that lead to client losses.

Can I bundle multiple insurance policies?

Yes. If you get multiple policies from the same insurer, you can bundle them. You can’t bundle policies from different insurers, though.

Is insurance required for home-based businesses?

It’s probably a good idea. Depending on your industry, you may need professional liability or cyber liability coverage. You might also need general liability, especially if you meet clients at your home-based business.

Here’s how to start your home-based business