When you start a small business, you’re likely aware that you will need business insurance, but understanding what insurance policies are truly necessary can be complicated and confusing. Small businesses may want to avoid paying excessive premiums, but it’s important to remember that if an incident should occur, the costs of having to handle a large claim without insurance could be enough to put many companies out of business. Your specific business insurance needs may vary depending on your industry, but there are a number of common policies that are relevant for most companies.
The Best Small Business Insurance
- Best Overall: Chubb
- Best General Liability: The Hartford
- Best Commercial Auto: Progressive Commercial
- Best Cyber Liability: Hiscox
- Best Professional Liability: Chubb
- Best Product Liability: Chubb
- Best Business Owner’s Policy: Nationwide
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Chubb: Best Overall
Chubb is one of the largest global commercial insurers, with over $190 billion in assets and operations in over 50 countries. Consistently rated high in financial strength, Chubb has an A++ rating from AM Best and an AA rating from Standard & Poor’s, in addition to being rated #1 in J.D. Power’s small commercial insurance customer satisfaction study.
We chose Chubb as our best overall because of its diverse product portfolio, ability to service a wide range of businesses from startups to established companies, and high ratings on customer satisfaction and financial strength. Chubb is widely recognized as a strong insurer with excellent client support, and its wide range of insurance products means most small businesses will be able to find the right coverage for their needs. While their website capabilities have historically lagged some of their competitors’, Chubb has vastly improved its site in recent years, and we expect the improvements to continue.
The Hartford: Best General Liability Insurance
The Hartford is a top property and casualty insurer with a strong focus on small business coverage. The Hartford has been given an A+ rating by both AM Best and Standard & Poor’s, reflecting strong financial footing, and has been widely recognized for service excellence.
We chose The Hartford as our best general liability insurance company because of its strong financial ratings, robust product offering, and easy-to-use quoting tool. The Hartford is an well known and established insurer, with a long history of providing coverage for small businesses. While there have been some mixed reviews from customers, overall, customer sentiment is extremely positive.
Progressive Commercial: Best Commercial Auto Insurance
Progressive is one of the top commercial auto insurers in the nation, with extensive experience insuring commercial vehicles. Progressive boasts an AM Best rating of A+ and a Standard and Poor’s rating of AA. With customizable coverage for autos, trucks, and trailers, Progressive offers a number of benefits, including online quotes and claims and a variety of discount options.
We chose Progressive as our best commercial auto insurance company because of its great reputation in auto coverage, strong financial standing, convenient and user-friendly online tools, and variety of coverage options. While there have been some mixed customer reviews, by and large, Progressive has above average satisfaction ratings.
Hiscox: Best Cyber Insurance
Hiscox is an established leader in business insurance, with a strong focus on providing coverage to smaller businesses. Hiscox received A ratings from both AM Best and Standard and Poor’s, indicating solid financial strength, and the company boasts over 400,000 small business customers.
We chose Hiscox as our best cyber insurance company because of its strong focus on small businesses, robust financial standing, and extensive training and support in cyber risk for businesses. Cyber risk management can be a confusing and relatively new area for small businesses, and we found Hiscox’s suite of resources to be a great help for business owners without extensive cyber risk management experience.
Chubb: Best Professional Liability Insurance
Chubb was rated our overall best insurer, and the company tops out our professional liability category as well. With an A++ rating from AM Best and an AA rating from Standard & Poor’s, in addition to being rated #1 in J.D. Power’s small commercial insurance customer satisfaction study, there’s a lot to like about Chubb.
We chose Chubb as our best professional liability insurance company because of its tailored professional liability and E&O solutions, high ratings on customer satisfaction and financial strength, and strong support for small businesses. Chubb’s professional liability insurance policies cover a variety of professions, including media, technology, financial institutions, architects, engineers, lawyers, and public entities. Chubb’s policies can be customized to fit individual businesses, and the company offers broad definitions of wrongful acts, damages, and insureds.
Chubb: Best Product Liability Insurance
Chubb, our pick for best overall insurer, also leads in our product liability insurer category. Chubb’s product liability insurance programs are customizable and can be tailored to fit many industries. The insurer offers a coordinated claims process, provides consulting services to reduce the likelihood of incidents, and can help manage long-term exposures such as asbestos.
We chose Chubb as our best product liability insurance company because of their high ratings on customer satisfaction and financial strength and their robust risk management services. Chubb’s risk management programs are designed to promote product safety and minimize a company’s potential for products liability claims, helping business owners to benchmark risk management programs, identify opportunities for improvement, and minimize likelihood and impact of products liability losses.
Nationwide: Best Business Owner’s Policy
Nationwide is a leading insurer with A+ ratings from both AM Best and Standard & Poor’s. The company has a long established history and provides a wide variety of endorsements and coverage types to add to your BOP. Nationwide’s BOPs are designed for businesses with less than $5 million in revenue and fewer than 100 employees, and can be customized to fit your unique business’s needs.
We chose Nationwide as our best business owner’s policy provider because of their high customer satisfaction ratings, strong financial footing, and streamlined web experience. While a variety of insurers offer business owner’s policies, Nationwide offered the most robust product with a variety of endorsements and customizations for many different professions.
Brokers for Small Business Insurance
A good option for business owners is to work with a trusted insurance broker. Brokers can take into account your business’s needs and help you find and compare quotes from multiple insurance providers. Every insurer is different, and there are a lot of options out there. A broker can help you narrow down your selections and find a few options that may work best for your business. Below, we’ve highlighted a few of the top small business insurance brokers.
CoverageSmith is a leading online broker specializing in insurance for small businesses. The company provides a modern, tech-enabled solution for businesses, allowing them to quickly get the insurance they need, completely online, from some of the most trusted insurance carriers in the world, including Chubb, The Hartford, AIG, and CNA.
CoverWallet is an online broker backed by Aon, an insurer with an A rating from AM Best. The company provides online quotes, assessments to help you understand what types of insurance your business needs, and online claims processes. It may be possible to manage your pre-existing insurance policies through CoverWallet.
Embroker is backed by Munich Re, a financially strong insurer with an A+ rating from AM Best and an AA- rating from Standard & Poor’s. Embroker offers online quotes and claims, in addition to assistance that is available 24/7 via live chat, email, or phone. Embroker also provides a personal account manager who can help with insurance needs.
Why do small businesses need insurance?
If a small business suffers a major disaster or is hit with a serious lawsuit, it may not have the financial resources necessary to recover. Although small businesses may believe that their risks are lower than larger corporations, they are subject to many of the same perils, and they are often hit harder if incidents arise. Insurance policies can take on some of the risks of doing business, providing funds that can help keep your business afloat through tough times. Business insurance is an essential way to protect your company’s assets and allow you to continue operating and building your business even if a costly incident occurs.
What are the most important types of small business insurance?
The following types of business insurance are important for small business to consider:
Commercial property insurance protects the value of your business’s property, including owned or leased office space, furniture, computers, equipment, tools, and office supplies. This is a key coverage that most companies should carry, as damaged or destroyed property can be expensive and inconvenient to repair or replace, and the loss of property can severely impede your ability to operate your business.
Commercial property insurance can cover fire, explosions, windstorms, vandalism, theft, and other common hazards. Small companies should be aware that this type of insurance could be necessary even for home businesses or companies where employees primarily work remotely — homeowners and renters insurance policies often exclude coverage for business property.
- You run an independent bookstore. Lightning strikes your building and causes a fire, damaging your building and destroying much of your inventory. Your commercial property insurance would provide funds to cover repairs and lost inventory.
Business interruption insurance, also known as business income insurance, can help your company continue operating in the event that property is damaged or destroyed, forcing you to temporarily close your business. If you must halt or reduce your business operations because of a covered cause of loss, your insurer will reimburse your business for its lost or reduced income. Coverage includes the business’s net profits plus normal operating expenses such as rent or mortgage payments, employee salaries, and taxes.
Business interruption insurance policies can be purchased with or without extra expense coverage, which would pay for additional expenses you incur in order to continue operating your business, either at your original location or a temporary one. This could include moving costs, rent for a temporary location, and rental equipment.
Business interruption coverage is typically available as an endorsement on commercial property insurance policies. It may be unnecessary for small businesses that are able to perform most work remotely and would likely be able to continue operating normally even if their physical property is damaged. However, small businesses that operate from a retail or commercial location, depend on costly, difficult-to-replace equipment, or have a high risk of property damage could benefit from this coverage.
- You own a screen printing company. A severe storm damages your building’s roof, causing it to leak. It’s necessary to move your stock and equipment to a temporary location until repairs are completed. Your business interruption insurance will cover rent for the temporary location and moving costs.
General liability insurance, also known as commercial general liability, covers your company if you unintentionally harm a third party. This is a key coverage because almost all companies have some level of risk for these claims. Risk exposure is particularly high for companies that perform dangerous work or have a high amount of foot traffic, such as retail businesses or companies that perform services for clients. However, even very small, non-dangerous businesses that rarely host outside visitors may still receive deliveries or require the services of repair technicians—all situations that could lead to an injury.
General liability insurance provides financial assistance for a variety of different types of harm, including bodily injury, property damage, and personal and advertising injury.
- Bodily injury coverage will cover you if someone who is not your employee is injured on your property or in the course of your work.
- Property damage coverage will provide funds if you damage someone’s property through your work.
- Personal and advertising injury covers many non-physical injuries, including copyright infringement, libel, slander, wrongful arrest, and a number of other types of claims.
- Products and completed operations coverage kicks in if your company’s products or completed services cause bodily injury or property damage.
- An employee of your roofing company loses hold of a ladder and it falls against the client’s wall, breaking a valuable decorative stained glass window. General liability insurance would cover the damages.
If your employees are injured, fall ill, or die in the course of their work, workers’ compensation insurance will provide them with medical and financial benefits. Workers’ comp can pay for an injured employee’s medical expenses, rehabilitation, and a portion of lost wages. In the case of a work-related death, workers’ comp can cover funeral costs and provide death benefits for the employee’s surviving family. Workers’ compensation is a no-fault policy, which means that insurers will pay benefits regardless of who is at fault for the injury.
Workers’ compensation is regulated at the state level, with each individual state setting the regulations and requirements for what employees and injuries qualify, what benefits are provided and for how long, and what companies must secure workers’ compensation coverage. In most states, workers’ compensation insurance is legally required for companies that regularly employ others. It’s important to check your state guidelines to ensure that your business is in compliance. Failure to adhere to these local workers’ comp laws can result in civil fines and even criminal charges.
- You run a landscaping company. While installing a heavy planter, your employee sustains a back injury and needs medical treatment. While he is recovering from his injury, he is unable to perform his regular work duties. Workers’ compensation insurance would provide coverage for medical bills, rehabilitation expenses, and a portion of the employee’s lost income while he is recovering at home.
Professional liability insurance, also known as errors and omissions insurance, is an important coverage for companies that provide professional services or advice. If your company is sued because of its professional work, professional liability insurance will provide financial assistance, covering legal defense fees and any resulting settlements or judgments.
The professional risks that different industries face can vary widely, so professional liability policies are usually designed for specific professions. Mistakes, omissions, or failures in professional work can often cause major financial losses for clients; if someone accuses you of unsatisfactory or negligent professional advice or services, you could find yourself embroiled in a costly, time-consuming lawsuit. Professional liability insurance can provide crucial support in these cases.
- Your web development company creates an e-commerce web application for an online jewelry and accessory company. Unfortunately, an error in your code means that customers are unable to complete purchases. Customers cannot place online orders for several days until the problem is fixed, and your client loses money and receives hundreds of complaints. They sue your company for damages. Your insurer would cover the lawsuit and any damages or settlements.
Commercial auto insurance is necessary for any company that owns or leases vehicles under its name, as most states require a minimum level of liability coverage for all vehicles. The costs associated with automobile collisions can be extremely high, so it’s a good idea to make sure your company has sufficient coverage. Commercial auto insurance includes a liability component, which covers your company if it’s at fault in an accident that causes bodily injury or property damage, and a property component, which covers the value of the vehicle itself.
- You run a pool cleaning business. While driving to a client’s home, your employee runs over a deep pothole, causing him to lose control of the vehicle and crash into the wall of a nearby business. Commercial auto insurance would pay for repairs to the business’s building and your company vehicle.
Cyber liability insurance covers losses and damages that result from cyber events, including hacking, data breaches, cyberattacks, ransomware, cyberextortion, denial of service attacks, viruses, and more. This coverage is crucial for companies that rely on technology and electronic data, as most general liability policies specifically exclude coverage for cyber events. Even companies with excellent cybersecurity practices can fall victim to cyberattacks since criminals constantly develop new methods and find new loopholes for accessing systems.
Although small companies may associate cybercrimes with incidents that occur with major corporations, small businesses are actually more likely to be victims of an attack. Smaller businesses often lack the resources and training to prevent cybersecurity breaches and may not be able to immediately identify and address any problems that arise.
- You own a small, specialty manufacturing business in the aerospace field. Many of your clients are in the defense industry, and the work you do for them involves highly confidential and proprietary information. Your business is targeted by a group of Russian hackers, who break into your internal network and steal customer data. Your clients sue your firm, alleging you were negligent in protecting their private data. Cyber liability insurance would cover the costs of defending your firm against the lawsuit.
Employment practices liability insurance (EPLI) protects your company if current, past, or prospective employees sue with claims of wrongful treatment. When you operate a company, you control hiring, firing, promotions, and compensation — all aspects of employment that have a major effect on your employees’ lives. If your employees feel that they were treated unfairly, they could sue you with claims of wrongful treatment.
Lawsuits related to discrimination, harassment, retaliation, and many other employment issues are common. In the event of a lawsuit, your EPLI insurance would provide funds to cover your legal fees and any settlements or judgments against your company. Policies typically include coverage for your company, directors, officers, managers, and current and former employees.
Smaller companies are particularly vulnerable to EPLI claims because they may lack the resources to prevent situations from occurring. Small businesses are less likely to have dedicated HR and legal personnel to manage employee issues and handle complaints. They may not have clearly defined procedures for hiring, firing, documenting problems, or conducting performance reviews. Unclear procedures and regulations make it more likely that employees will perceive their treatment as wrongful and bring a suit, and it’s more difficult for employers to defend themselves in court if the reasons for their actions aren’t clearly documented.
- An employee of your accounting firm does not receive a promotion, and a coworker with less experience receives the promotion instead. Your employee had noticed a pattern of coworkers and managers making comments and jokes about her religion. She sues, alleging that she was passed over for the promotion due to religious discrimination.
A business owner’s policy (BOP) is a common option for small and midsize businesses. It combines a number of key insurance policies into one package, simplifying the process of buying insurance and enabling smaller businesses to save on costs. Premiums for BOPs are typically lower than the price of buying each coverage individually. BOPs typically include general liability, commercial property, business income, and extra expense coverage.
In addition, many insurers will allow you to tailor your BOP to your individual business needs, adding other types of coverage by endorsement. You may be able to add endorsements providing professional liability coverage, cyber liability coverage, bailee’s coverage, employment practices liability coverage, or other options, depending on your insurer and your company’s requirements.
Companies must meet certain requirements to be eligible for a BOP, usually based on the type of business, size of its location, number of employees, and revenue. Exact requirements vary based on the insurer, but these criteria are common:
- Own or lease a physical business location or office
- Conduct business primarily on your business premises
- Employ fewer than 100 people
- Make less than $5 million in sales
How much does business insurance cost?
The costs of business insurance can vary widely depending on the nature of your business. When insurers evaluate your company to determine what pricing to offer, they look at your risk levels for the type of claims they would have to cover.
Common factors that affect pricing include:
- Number of employees
- Industry and type of business
- Type of property and assets owned
- History of prior claims
For more specific types of insurance, insurers look at the factors that raise risk for that coverage. For example, commercial auto insurance providers would look at the size of your fleet, types of vehicles, how vehicles are used, and other factors to determine your risk level and pricing.
Average Annual Premiums for Small Businesses
|Insurance Type||Average Annual Cost|
|Business Interruption Insurance||$500 - $1,500|
|Business Owner's Policy||$350 - $2,500|
|Commercial Auto Insurance||$750 - $2,500|
|Commercial Property Insurance||$500 - $3,500|
|Cyber Liability Insurance||$650 - $2,500|
|Employment Practices Liability Insurance||$1,500 - $2,250|
|General Liability Insurance||$365 - $1,700|
|Professional Liability Insurance||$300 - $2,500|
|Workers' Compensation Insurance||$375 - $1,400 per employee|
How do I choose an insurance provider?
When considering an insurance provider for your small business, you should also make sure to pay attention to three major factors:
The financial strength of the company. Insurance claims are paid out of the money that an insurance company has available, so you’ll want to choose a company that has enough money to pay for potential claims. Major insurance carrier rating agencies, including AM Best, Fitch, Moody’s, and Standard & Poor’s provide letter grades evaluating the financial strength of insurance companies. Generally, it is safest to choose from insurance companies with ‘A’ ratings.
Pricing. Different companies have different models for pricing risks. You may find differences in premium rates for similar coverages from different insurance carriers. No insurer will have the cheapest rates all of the time, so it is worthwhile to shop around or work with an insurance broker to compare quotes.
Reputation for customer service. If you need to file a claim, make changes to your policy or billing address, or otherwise interact with the insurer, you will want an insurer with good customer service. Some insurance companies spend more than others on investments in technology and customer service. This can make a difference in your customer experience, especially when filing claims.
There are many potential risks that could affect your small business. Although most business insurance is optional, purchasing comprehensive coverage is an important part of protecting your company’s assets. The specific insurance needs of your company will vary depending on the nature of your work, but the majority of businesses will need a selection of common, foundational policies. With a broad range of insurance coverage, you can feel confident that your business will be able to survive unexpected events and continue thriving.
AdvisorSmith spoke with the following experts to provide critical insight on commercial insurance for small business owners.
- Director, School of Risk Management and Insurance
- University of South Florida, Muma College of Business
Q. How is the hardening commercial insurance market impacting small businesses? Are there any actions small businesses should take in a hardening market?
Steven: During hard insurance markets, insurance companies are especially concerned about their bottom line. As a result, insurers tend to raise prices and become more selective about the risks they are willing to insure. Thus, insurance customers will typically see premium rates rise and may find it challenging to obtain the insurance coverage they seek.
As not all lines of insurance necessarily harden at the same time, it’s useful to consider how, during a hard market, you might allocate your capability to retain risk to most efficiently obtain the catastrophic insurance coverage you need.
Q. How should businesses think about balancing risk and affordability when it comes to commercial insurance?
Steven: Managing risk involves both financing (i.e., paying for) risk and controlling (e.g., mitigating) risk. With respect to risk financing, insurance is most efficient when it’s used to cover catastrophic events rather than more predictable or affordable levels of loss. Thus, exploring increasing your retention (e.g., your deductible) can help insurance customers get more “bang” for their insurance premium dollar.
Important considerations include:
- Insurers value customers who are more willing to share in the cost of risk. Larger retentions significantly increase the incentive alignment between insurer and insured.
- How much risk can you afford to retain? Have you defined risk tolerance in terms of acceptable impact to your income statement and/or balance sheet?
- Effective risk control impacts both long-run insurance premiums and access to insurance coverage. For example, safer drivers will find it easier to get coverage and realize lower auto insurance premiums.
- Small business owners and entrepreneurs who may not have a risk management specialist on staff would be well served to build relationships with consultative insurance agents or brokers who can help identify risk management options and strategies that fit their circumstances.
Q. What can businesses do to lower their commercial insurance premiums?
Steven: It can be helpful to put your insurance carrier in competition on a periodic basis. There are opportunities for efficiencies with long-term relationships. However, it is important to keep in mind that insurer appetites for particular risks change over time.