Seventy-five percent of small businesses are underinsured, according to Insurance Journal. Is yours one of them?
Running a small business is an adventure—and like any adventure, it comes with risk. Whether you’re managing a store, working from home, or leading a growing team, an unexpected event like a storm, lawsuit, or cyberattack can bring your business to a halt.
And, if you’re not protected by the right insurance, you’re taking risks you might not be able to afford if disaster strikes.
You’re not alone.
If you’ve ever wondered what kind of insurance you really need—or whether you’re truly protected—this guide is here to help.
We’ll break down the core types of coverage every small business should consider, bust some costly myths, and show you how to make smart, cost-effective choices that protect your livelihood and your peace of mind.
Let’s get started.
Topics Covered
Coverages Every Small Business Should Understand
Navigating insurance can feel overwhelming—but there are a few essential policies nearly all small businesses should consider. Think of these as your business’s financial safety net.
Pro tip: Click the links below for a detailed breakdown of each type of insurance.
1. General Liability Insurance
This insurance covers injuries to third parties, property damage, and legal claims like libel or slander. It’s often the first—and most essential—policy.
Pro tip: It doesn’t cover employee injuries or professional mistakes.
2. Commercial Property Insurance
Need to protect your building, inventory, and equipment from fire, theft, and other covered disasters? This is it. Some policies may also include business interruption coverage for lost income during downtime.
Pro tip: Floods and earthquakes are not typically included—consider separate policies if you’re in a high-risk area.
3. Business Owner’s Policy (BOP)
A convenient bundle of general liability, property, and business interruption insurance—ideal for small businesses looking to save on premiums and simplify coverage.
4. Professional Liability Insurance
Professional liability insurance is critical for service-based businesses and covers claims of negligence or errors in the professional services or advice you provide.
Cyber threats are rising. This policy helps cover breach notifications, legal defense, ransomware payments, recovery costs and more, depending on your coverage and the type of business you operate.
6. Workers’ Compensation Insurance
This is required in most states if you have employees and covers medical bills, partial wages for on-the-job injuries, and may protect you from certain types of lawsuits.
7. Commercial Auto Insurance If your business owns vehicles, this policy is essential. Personal auto policies won’t cover business-related accidents.
5 Common Insurance Myths That Could Cost You
Many small business owners are unknowingly operating with dangerous gaps in coverage, based on assumptions that just don’t hold up. Let’s review some of the most common myths that often leave businesses vulnerable.
1. “I’m too small to need insurance.”
The reality is that your business may be small, but the risks are not. In fact, smaller firms are often more vulnerable because they don’t have the financial cushion to absorb unexpected losses.
Every business should carry insurance, and if you’re not, or haven’t reviewed your coverage in a while, it’s time to talk to a local insurance expert to get customized coverage that meets your unique needs.
2. “My homeowner’s policy covers my home business.”
Most homeowners’ policies exclude business activity—including liability, inventory, and damage to business equipment.
- Home-based businesses that store inventory, meet with clients, or use specialized tools are not covered under standard homeowners’ insurance.
- If a client trips and falls in your home office or a fire destroys your business laptop, your personal policy probably won’t help.
What can you do?
Ask your insurer about a home-based business rider or a standalone business policy.
- If you travel for work or store inventory off-site, look into off-premises coverage.
- Maintain a detailed inventory list with receipts and photos for claims documentation.
3. “My LLC or corporation protects me.”
Forming an LLC can help shield your personal assets, but it doesn’t cover the business’s financial losses.
- LLCs and corporations are legal structures, not financial safety nets.
- If your business faces a lawsuit, flood, or ransomware attack, your LLC doesn’t pay the bills—insurance does.
What can you do?
Treat your LLC as your legal firewall and your insurance as your financial safety net. Make sure your business has protection for:
- Third-party liability
- Professional services
- Employee injuries
- Property damage
- Cyber threats
For a complete list, contact a reputable insurance company.
4. “Cyberattacks don’t happen to businesses like mine.”
Actually, hackers love small businesses because they assume you’re easier to breach, and the statistics say that they’re often right.
- 41% of small businesses reported at least one cyberattack last year, with a median cost of $8,300.
- Attacks include phishing, ransomware, wire fraud, and data theft—and they don’t just hit tech companies.
What can you do?
Add a Cyber Liability Policy if you handle customer data, take payments, or use cloud storage.
- You can also improve your defenses with MFA, data backups, software updates, and employee training.
- Ask your insurer about cyber risk assessments or discounts for implementing safeguards.
5. “Once I buy insurance, I’m set for life.”
Insurance isn’t “set it and forget it.” In fact, your policy should evolve with your business as you grow and change so that your risks are always in line with your coverage. The Small Business Association recommends reviewing your insurance annually or after any big change (like hiring staff, purchasing equipment, or expanding services).
Consider that over half of small-business owners say they feel unprepared for major mishaps—often because their coverage hasn’t been updated.
Yet, this is one of the easiest things to rectify to ensure you have the protection you need. Schedule an annual review with your agent. Some common updates to policies may include:
- Hired or laid off employees
- Bought or sold property/equipment
- Added new services or product lines
- Working with larger or riskier clients
Pro tip: Policy reviews may also uncover duplicate coverage or opportunities to save.
How to Choose the Right Coverage Without Breaking the Bank
Protecting your business doesn’t mean overspending on coverage you don’t need—or worse, leaving gaps that could cost you everything. Here’s how to get the right insurance coverage without paying more than you have to:
1. Start With a Risk Checkup
Before you look at policies, take a step back and ask: What could realistically go wrong in my business?
- Do you operate in a region prone to fires, floods, or storms?
- Do you have employees who work with heavy equipment or drive on the job?
- Do you store sensitive customer data online?
- Do you manufacture products or offer professional advice?
This kind of self-assessment is your starting point. The SBA suggests creating a checklist to identify “what kind of accidents, natural disasters, or lawsuits could damage your business” (SBA.gov).
Write it down. Think it through. Then compare those risks to your current insurance coverage. That gap? That’s your exposure.
Pro tip: A formal risk assessment—done by yourself or with an agent—can help you avoid paying for coverage you don’t need, and ensure you’re not missing anything crucial.
2. Talk to the Right Agent
Commercial insurance isn’t one-size-fits-all, and prices can vary between companies. That’s why it’s critical to get quotes from multiple carriers—and work with a licensed agent or broker who understands your industry.
Find a reputable licensed agent who can explain your options clearly and tailor coverage to your needs—not just sell you a high-commission policy.
What to look for in an agent:
- Experience with businesses of your size
- Familiarity with your industry’s risks
- Willingness to shop the market
- Transparency around coverage limitations
3. Bundle Up and Save
If you’re purchasing multiple types of insurance—say general liability, commercial property, and business interruption—look into a Business Owner’s Policy (BOP). This package typically combines those coverages into one policy at a lower rate than buying separately.
Other bundle opportunities may include:
- Auto + property insurance
- Workers’ comp + liability
- Cyber + professional liability
Ask your agent about multi-policy discounts or credits for using the same insurer across multiple lines as well.
4. Use Deductibles and Safety to Your Advantage
A higher deductible means lower premiums—but only choose a deductible you can afford to pay in an emergency. Evaluate your financial situation before changing your deductible.
You can also save by reducing your risk. Insurance companies reward businesses that take safety seriously. That means:
- Installing fire alarms or sprinkler systems
- Setting up anti-theft or surveillance systems
- Training staff on safety and cyber hygiene
- Using secure passwords, MFA, and offsite data backups
The more proactive you are, the more likely you are to qualify for premium credits. A good agent will be able to guide you through the process.
5. Spot Coverage Gaps Before They Bite You
This is where small business owners may get burned. Common coverage gaps include:
- Flood or earthquake damage (usually excluded from standard property policies)
- Cyber breaches (not always included in a BOP)
- Employee lawsuits (you may need employment practices liability)
- Product recalls (essential for manufacturers or food businesses)
- Professional errors (E&O coverage required)
Ask your agent to walk you through worst-case scenarios.
6. Stay Legal—Know What’s Required in Your State
Workers’ compensation and unemployment insurance are usually required once you hire staff. Some states also mandate:
- Short-term disability insurance
- Professional liability for certain licenses
- Special endorsements for high-risk industries
Failing to comply can result in steep fines so visit your state insurance department’s website or consult your agent to make sure you’re up to code.
7. Reassess Every Year
Businesses change—and your insurance should too. Did you:
- Move to a new space?
- Buy new tools or inventory?
- Hire more employees?
- Expand your services?
Even small changes can alter your risk profile. The SBA urges business owners to review coverage every year and inform your agent of any changes to avoid gaps or overpayment.
Final Thoughts
Insurance equals business resilience. Being proactive about your insurance strategy doesn’t just protect you—it puts you in the driver’s seat. The cost of smart coverage is almost always less than the cost of one big uninsured loss.
No matter how careful you are, things happen. The question is: will your business survive and bounce back—or get buried under bills and lawsuits?
Business insurance is more than just a legal box to check. It’s a strategic tool to safeguard everything you’ve worked for. It gives you the freedom to grow, take on bigger clients, and sleep better at night.
Need to learn more about business insurance?
Our agents are ready to help, so contact us to learn how we can customize your insurance policies to meet your needs.
*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the services or products listed here. Please get in touch with your local agent to learn how we can help with your insurance needs.
Sources
Burns & Wilcox. Insurance Preparedness and Knowledge Gap Survey Results among Small Business Owners. https://www.burnsandwilcox.com/insights/90-of-small-businesses-lack-confidence-in-being-adequately-insured-survey-finds/
Farmers Mutual Insurance. Common Business Insurance Myths, Home-Based Business Gaps, and LLC Misconceptions. https://www.fmins.com/blog/common-business-insurance-myths/
FEMA. Disaster Recovery Statistics, Business Continuity Planning, and Flood Risk Data. https://www.fema.gov
FEMA. Stay in Business after a Disaster by Planning Ahead. https://www.fema.gov/press-release/20250121/stay-business-after-disaster-planning-ahead
Inc. Hiscox/Inc. Study: Underinsurance and Cyber Readiness among U.S. Small Businesses. https://www.inc.com/hiscox/small-business-cybersecuritythreats-on-the-rise.html
Insurance Business America. 2024–2025 Commercial Insurance Market Trends and Premium Rate Changes. https://www.insurancebusinessmag.com
Insurance Information Institute. General Liability, Property, Workers’ Comp, and BOP Insurance Policies Explained. https://www.iii.org
Insurance Journal. 75% of Small Businesses Are Underinsured, Says Hiscox Survey. https://www.insurancejournal.com/news/national/2023/10/11/743586.htm