Small Business Insurance Basics: General Liability, BOPs, Professional Liability, and More
Small businesses face risks that personal policies don't cover. Here is what the main business coverages do, how a business owner's policy bundles them, and the gaps owners commonly miss.
Personal insurance policies generally exclude or sharply limit business activities. Once you run a business, even from home, you typically need business coverage. The right mix depends on what you do, whether you have employees, whether you see clients in person, and what contracts require.
The short version
- General liability covers claims of bodily injury and property damage to others, and some advertising and personal injury claims.
- Commercial property covers business buildings, equipment, and inventory.
- A business owner's policy (BOP) bundles general liability and property for many small businesses, often with business interruption coverage.
- Professional liability (errors and omissions) covers claims that your professional advice or services caused financial harm.
- Workers' compensation is generally required by state law when you have employees.
- Commercial auto covers vehicles used for business.
- Cyber liability covers data breaches and some cyberattacks.
The main coverages
| Coverage | What it generally covers | Who commonly needs it |
|---|---|---|
| General liability | Injuries or property damage to others; some advertising injury | Most businesses, especially those with customer contact |
| Commercial property | Buildings, equipment, inventory | Businesses with physical assets |
| Business interruption | Lost income after a covered property loss | Businesses that would lose revenue if closed |
| Business owner's policy | Bundles the above for eligible small businesses | Many small, lower-risk businesses |
| Professional liability (E&O) | Negligence, errors, or omissions in professional services | Consultants, advisers, agents, designers, many service businesses |
| Workers' compensation | Employee work injuries and illnesses | Employers, as required by state law |
| Commercial auto | Vehicles used for business | Businesses that own or use vehicles |
| Cyber liability | Data breach response, cyber extortion, related liability | Businesses that store customer data |
| Commercial umbrella | Extra liability above underlying policies | Businesses with larger liability exposure |
Home-based businesses
A homeowners policy often provides little coverage for business equipment and usually excludes business liability. Options include a home business endorsement, an in-home business policy, or a BOP, depending on the business. Ask your agent which fits.
Gaps owners commonly miss
- Professional liability: general liability usually doesn't cover financial losses from bad advice or errors.
- Using personal vehicles for business: personal auto policies may limit coverage for business use.
- Contracts: clients or landlords may require specific limits, additional insured status, or waivers of subrogation.
- Independent contractors: misclassifying workers can create workers' compensation exposure.
- Cyber risk: even small businesses hold sensitive data.
- Business interruption conditions: coverage usually requires a covered physical loss, and waiting periods apply.
Getting started
- List your risks: what could injure someone, damage property, or cost a client money?
- Check legal requirements: workers' compensation, commercial auto, and licensing-related coverage.
- Review contracts and leases for insurance requirements.
- Work with a licensed agent who handles commercial insurance and can compare insurers.
- Review annually as the business grows.
The takeaway
Small businesses need coverage that personal policies don't provide: liability, property, professional liability, workers' compensation, and more depending on the business. A BOP covers many basics for eligible businesses, but professional liability, auto, cyber, and contract requirements often need separate attention.
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