Starting and growing a small business takes vision, grit, and capital, but one unplanned incident can derail even the most promising venture. That’s why having the right commercial insurance policies in place isn’t just a box to check — it’s a critical part of long-term business sustainability and financial planning.
Whether you’re applying for financing, hiring your first employees, or scaling up operations, understanding and selecting the right insurance coverage helps protect your people, property, and profits. Here are six essential types of commercial insurance that every small business owner should consider:
1. General Liability Insurance: Your First Line of Defense
What it Covers:
General liability insurance protects your business from third-party claims related to:
- Bodily injury (e.g., a customer slips and falls)
- Property damage (e.g., damaging a client’s equipment)
- Personal and advertising injury (e.g., claims of libel or slander)
Why it Matters:
It’s often the minimum insurance required to sign leases, bid on jobs, or meet vendor contracts. Lawsuits can be expensive even if you win. This policy helps cover legal fees, settlements, and medical costs.
Tip: Lenders often want to see this policy in place, especially if you operate in a physical location or interact with the public.
2. Business Owner’s Policy (BOP): The Small Business Starter Pack
What it Covers:
A BOP bundles multiple key policies into one, usually including:
- General liability insurance
- Commercial property insurance (covers your building, equipment, and inventory)
- Business interruption insurance (replaces lost income if you’re forced to temporarily shut down due to a covered event)
Why it Matters:
It’s affordable, customizable, and convenient. A BOP is ideal for small businesses looking to secure broad coverage without managing multiple policies separately.
Tip: If you’re applying for an SBA loan and using equipment or a building as collateral, this type of policy can help meet multiple insurance requirements in one.
3. Workers’ Compensation Insurance: Required Coverage for Employees
What it Covers:
Workers’ comp pays for:
- Medical bills and lost wages due to work-related injuries or illnesses
- Rehabilitation costs
- Death benefits to dependents in tragic cases
Why it Matters:
Most states require it if you have even just one employee. Without it, you risk significant fines and personal liability for employee injuries.
Tip: This is often one of the first questions asked during loan underwriting or regulatory audits. Don’t wait until you’re hiring to explore coverage options.
4. Cyber Liability Insurance: Protection in a Digital World
What it Covers:
Cyber policies help your business recover from:
- Data breaches involving customer or employee data
- Ransomware or phishing attacks
- Downtime due to digital infrastructure failures
- Regulatory fines related to data privacy laws
Why it Matters:
Small businesses are prime targets for cyberattacks. The average breach costs small businesses over $100,000, and many never recover.
Tip: If your business collects personal, payment, or health information, or if you’re applying for a loan and operate online, cyber coverage may be required or strongly recommended.
5. Professional Liability Insurance (Errors & Omissions)
What it Covers:
This policy protects against claims that your services or advice caused financial harm. Common claims include:
- Missed deadlines
- Inaccurate work
- Breach of contract
- Negligence or failure to deliver
Why it Matters:
If you’re in a service-based business, such as law, finance, marketing, healthcare, or consulting, this is a must-have. Even if you do everything right, client expectations and legal realities don’t always align.
Tip: Some SBA lenders require this for professional service providers. It’s also essential for retaining key clients who include insurance provisions in vendor contracts.
6. Management Liability Insurance: Safeguarding Your Leadership
What it Covers:
Management liability includes a bundle of policies to protect business owners, executives, and board members:
- Directors & Officers (D&O): protects personal assets of leadership against claims of mismanagement
- Employment Practices Liability (EPLI): covers claims of wrongful termination, discrimination, or harassment
- Fiduciary Liability: covers errors in managing employee benefits
Why it Matters:
As your business grows, so does your exposure to lawsuits tied to management decisions. This type of insurance is often overlooked until it’s too late.
Tip: If you’re raising capital, bringing on outside advisors, or expanding your team, management liability coverage should be part of your risk strategy.
Final Thoughts: Build Your Insurance Portfolio Intentionally
The right insurance portfolio isn’t just about meeting legal or lending requirements. It’s about building resilience. Every small business is unique, so your coverage should reflect your operations, size, industry, and growth plans.
Checklist for Getting Started:
- Conduct a risk assessment: What are your exposures?
- Review your current policies (if any): Are there gaps?
- Prioritize based on risk, legal requirements, and lender expectations
- Work with a licensed insurance advisor — preferably one who understands small businesses and small business lending