Small Business Insurance: Where to Start

The coverage a small business or side hustle should look at first 👇

For most new business owners, insurance stays off the radar until a client, a landlord or a marketplace asks for a certificate of insurance. Knowing the main types of small business insurance ahead of time turns that request from a scramble into a quick task, whether the business is a corner shop, a mobile cleaning service or a side hustle run on weekends. This guide covers what to look at first, what the law may require and what pushes the price up or down.

Which types of small business insurance come up first?

The U.S. Small Business Administration (SBA) names six coverages that small firms commonly buy. Three are liability lines (general, product and professional), one protects commercial property, one is a rider for home-based businesses, and the last is the business owner's policy. Few businesses need every one. For a consultant, the bigger worry is usually a claim over advice or a missed deadline, while a bakery may lean toward product liability and property coverage for its ovens and storefront.

A good starting exercise is to list what could realistically go wrong: a customer slipping on a wet floor, a mistake in a client deliverable, a stolen laptop, a fire in the workshop. Each risk points toward one of the coverages below.

General liability insurance or a business owner's policy?

General liability insurance is the foundation. The Hartford describes it as coverage that helps protect a business and its assets if someone sues over negligence, an injury, damaged property, or libel and slander. A BOP goes a step further: it packages that liability protection with coverage for commercial property and for lost business income, and The Hartford notes that many small businesses begin with one.

The right pick comes down to the assets involved and the place the work happens. Someone freelancing from a laptop might be fine with a liability policy alone, whereas a little shop with stock on the shelves often gets more value from a BOP.

Which business insurance is required by law?

According to the SBA, once a business has employees it is required to have workers' compensation, along with unemployment insurance and disability coverage, and certain states go further. When vehicles are used for the business, commercial auto coverage may be needed as well. Because these rules vary from state to state, check your own state's requirements before hiring.

What affects the cost of small business insurance?

The kind of work, the location, headcount, annual revenue, past claims and the limits chosen all matter. The SBA also points out that the price of business coverage is one of those costs that swings widely from one place to another. NEXT Insurance, whose site now shows the name ERGO NEXT, offers online quotes for many trades, from contractors and cleaners to retail shops and fitness studios. The Hartford and Hiscox are other insurers small businesses compare; check each website for the coverage available in your state, and get a quote rather than relying on any average price.

The SBA's own guidance is simple: size up your risks, work with a licensed agent you trust (keeping in mind that agents earn a commission), and collect several offers so you can weigh price, terms and benefits.

How can you tell whether a business is underinsured?

Red flags include a client contract asking for higher limits than the policy carries, tools and stock whose value has outgrown the property limit, new hires without workers' compensation, and using a personal car for deliveries without confirming that the auto policy allows business use. A review once a year, plus another after any major change, catches most of these problems before they become expensive.

Do home-based businesses and side hustles need their own insurance?

Often they do, because an ordinary home policy may leave out work gear and customers who come to the door. The SBA describes coverage for home-based businesses as a rider attached to the homeowners policy, which can cover a small amount of equipment and some injuries to third parties. Anyone who sells on Amazon, rents a booth at a weekend market or teaches a class at a community college should ask whether that activity needs separate coverage.

Separating business money helps as well. Plenty of owners keep a dedicated checking account at Chase, Wells Fargo or Bank of America for premiums and other expenses, or put them on a Capital One or Citi business card that gets cleared in full each month. Starting an online business insurance quote is usually possible from a smartphone, whatever the carrier, T-Mobile, AT&T or Verizon included. Should you pass this guide along and receive anything from referral links, disclose it clearly, as the FTC recommends.

Small business insurance: common questions