We often hear after an event, “I thought it was covered by my business insurance.” Sadly, 75%-90% of small businesses are underinsured. This can lead to surprising out-of-pocket expenses for many businesses.
Because of this, we are often asked how much coverage is enough. Every business—whether retail, specialty, service, bar and grill, financial services, auto mechanic, doctor, lawyer, and more—need to insure their business against risk. But every company is different. So where do you start?
In this article we cover:
- The common types of business insurance
- How much liability insurance you need
- Common limits for common insurance options
- When you would need additional coverage
The Types of Business Insurance
Every business needs some type of business insurance to protect it. There are many options available to protect your business, but these are the two common categories:
- Property Insurance: There are a wide variety of property insurance coverages available. They are designed to protect your physical assets such as your building, business equipment, inventory, and other business property from damage, vandalism, or theft.
- Liability Insurance: Liability insurance protects the assets of your business if you are sued for bodily injury, property damage, professional errors, and more. It can help reimburse money spent on lawsuits, legal fees, and settlement costs.
Aggregate Limit vs. Per-Occurrence Limit
Business insurance policies are usually assessed two ways:
- Aggregate Limit: This is the maximum amount your insurance company will pay annually (or per policy period).
- Per-Occurrence Limit: This is the maximum amount your insurance company will pay out per claim.
How Much Business Insurance Do I Need?
The amount of property or liability insurance you need depends on numerous factors, some including:
- The type of business you own
- The size of your business
- Where is your business located? (state, county, city, neighborhood)
- The industry you’re in/services you offer
- How many employees you have
- The insurance options you’re choosing
- Annual revenue (or estimated annual revenue)
An insurance agent familiar with your industry can help you gauge how much coverage you’ll need to adequately protect your business—and it starts by answering some of these key questions.
Consider Legally Required Minimums
Every state—and even some counties—has different requirements. Many states require businesses to obtain some level of insurance coverage with legally mandated minimums. Other states have no requirements. Likewise, some require certain types of insurance (such as workers' compensation insurance to protect your employees). The insurance agent you’re working with should know the state-mandated minimum requirements or those required by law. If not, check your state insurance commissioners' website.
Common Coverage Limits for Common Types of Insurance
These are the most common policy limits a small business may expect when purchasing insurance through an insurance company.
General Liability Insurance
Most businesses generally start with general liability insurance. This insurance protects your business from claims of third-party bodily injury to customers, property damage, or advertising injuries.
The average insurance company will offer a policy that will pay up to $1 million per occurrence, with a maximum aggregate of $2 million. However, some start as low as $300,000.
Professional Liability Insurance
Professional liability insurance—also known as errors and omissions insurance—protects your business if you make a professional error in judgment or are accused of negligence while completing professional services. This insurance policy often covers attorney’s fees and legal settlements.
The average policy will pay up to $1 million per occurrence and $1 aggregate.
Cyber Liability Insurance
Cyber liability insurance can help your business recoup costs (and your reputation) if you’re the subject of a cyber-attack. The insurance company can also help cover the cost of any resulting lawsuits. Most cyber liability policies are offered at $1 million per occurrence/$1 million aggregate.
Employment Practices Liability Insurance
Employment Practices Liability Insurance (EPLI) protects your business if a current or former employee sues you for things like sexual harassment, discrimination, wrongful termination, etc. Most EPLI policies are offered at $1 million per occurrence/$1 million aggregate.
Commercial Property Insurance
Commercial property insurance (as mentioned earlier) helps reimburse the cost to replace or repair damaged property, equipment, or inventory if damaged by a covered loss. There can be a great variable in coverage for property insurance because it’s based on your unique business needs. Work with your agent to determine a total loss and the cost of replacing the entire structure and all equipment and furnishings while looking at starting over.
Do you have a home office space? Check out our recommendations for a home-based business.
When Would I Need Additional Coverage?
We recommend that you work with a licensed insurance agent to determine if higher policy limits or a commercial umbrella policy may be needed. A commercial umbrella policy can help cover claims that may exceed the underlying policy. An umbrella policy can often be more affordable than raising the cap of another policy. Plus, some umbrella policies will also cover things excluded from the underlying insurance.
It’s important to remember if you or an employee of your business is determined to be at fault for injuring a third party, the award can include all medical expenses (including rehabilitation), loss of income, and also damages for pain and suffering. Talk frankly with your insurance professional about the risks you face. Ask tough questions regarding your liability coverage and possible outcomes.
Small Business Owner: Get a Free Insurance Quote
We understand this process can be stressful! Hopefully, the information provided can help you get started! If you need help determining the right amount of general liability coverage for your business or would simply like more information, we'd love to help. You can give us a call at 877-907-5267 or complete the form at the top of the page.
Related Articles: What is Business Insurance?, Business Insurance Cost