Tips on Choosing the Best Insurance to Protect Your Small Business

Insurance is important for almost every business, but the sheer number of insurance types available—and the costs associated with them—can be intimidating, especially for new entrepreneurs. All types of insurance are meant to mitigate risks associated with your business, protecting it from legal action and, in some cases, physically destructive events. Accordingly, the best way to choose and modify your insurance policies is to acquire a better understanding of the specific risks your business faces.

So how can you evaluate your business’s risks?

Types of business insurance to consider

Let’s start by explaining some of the main types of business insurance you might purchase for your enterprise:

General liability insurance. General liability insurance is intended to provide blanket protection for a business, from things like property damage or personal damage. It can protect you from most lawsuits that would come to your business.
Product liability insurance. If you manufacture or sell a specific product, product liability insurance can protect you from things like defects or design flaws that lead to personal harm.
Property insurance. Property insurance can protect you from things like theft, vandalism, and some types of natural disasters as well as major repairs that may need to be done in the future.
Workers’ compensation insurance. Workers’ compensation insurance protects your employees should one of them be injured on the job. For the most part, this is a legally required type of insurance and requirements vary by state.
Business interruption insurance. Business interruption insurance will give you a payout if your business is unable to continue operations for a period of time.
Vehicle insurance. If your company owns vehicles, you’ll need policies to protect those vehicles, just like you would a personal vehicle.
Other types of insurance. There are several other types of insurance your business could need, including protection from specific natural disasters, and key person insurance to keep your business running after unexpectedly losing a key employee.

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How to evaluate your risk

Now let’s turn our attention to evaluating risk:

Consider your organizational structure. Depending on your organizational structure, you and your company may face different types of risks. For example, LLCs and corporations tend to be considered stand-alone entities, while partnerships and sole proprietorships might make you, as an individual, liable for certain types of damage.
Talk to insurance agents. Take the time to talk to different business insurance agents about the unique risks your business faces. They might be extra motivated to sell you on insurance, regardless of how much you need it, but they’ll help you analyze risks you may not have otherwise known you had. Talk to multiple agents to get the clearest picture on your overall risk.
Talk to lawyers. You may also want to talk to your lawyer about what types of liability insurance your business needs. They have far more experience with real cases than you do, and may be able to make better recommendations than an insurance agent.
Look at case studies. Take a look at businesses similar to yours, both in the present and in the past. What types of insurance have they carried? When have those insurance policies come in handy? Talking to other business owners is a good step to take, but make sure your sample size is big enough to draw a solid conclusion.
Consider your scale. You might be fine without insurance now, but what happens when you scale your business to the next level? In general, it’s best to choose insurance policies that have the power to grow with your business.
Consider your risk tolerance. Sometimes, your insurance decision will come down to a matter of personal perspective. How much risk are you willing to take?

In general, it’s better to have the main types of insurance than to risk not having them. However, every business is different, and you may be able to save a substantial amount of money by cutting or customizing certain policies. There’s no “right” answer here, but it’s important that you face the decision with all the facts in front of you.

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