Business Insurance: What It Is & How It Works

Business insurance is a category of coverages that help protect companies and their owners from a wide range of potential risks, from property damage and liabilities to employment practices and mistakes in work product. Having the right type of insurance coverage in place can provide much-needed security when unexpected events threaten a business’s finances. 

Business insurance helps protect companies from costly lawsuits and other legal actions that could result from accidents, natural disasters, and other unpredictable losses. It also provides reassurance that a business is prepared if the unexpected happens.

If you need coverage for your business, there are many providers that offer a variety of policies. Having worked with most of the big insurers, we recommend The Hartford as a reputable provider of small business insurance. If you have insurance needs, speak with an expert at The Hartford to see what they can do for you.

What Is Business Insurance?

Business insurance is a contract between a small business and an insurance company. Under the contract, the insurance company agrees to protect the business against a range of risks that vary based on the type of coverage the business buys. In exchange, the business pays the insurer a premium each month that is based on several factors.

Business insurance is used by businesses of all sizes – including sole proprietors – to protect them from risks arising as a part of their business activities. These can include damage to their own business’s property, damage to someone else’s business or property, or liability arising from injuries to customers or other members of the public. 

What does business insurance cover?

Business insurance covers a range of risks, depending on what types of coverage a business buys. Generally, the things covered by business insurance can be grouped into categories, including the business’s property, other people’s property, interruption of business, and potential liabilities arising from injuries suffered by clients, employees, or members of the public.

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How Small Business Insurance Works

Business insurance is a contract between the business and the insurance company. The business agrees to pay the insurer a premium in exchange for protection from certain risks. Depending on the type of policy, that protection may vary. For instance, some policies may offer more coverage than others if there is an accident involving injury or death.

• You buy coverage. The first thing to do is find an insurance company to work with. Coverage types and amounts vary, so it’s important to explain your business and its risks to a knowledgeable expert to ensure you get the policy that fits your needs. You also need to read the policy and understand what it covers, as well as any exclusions that may apply. 
• You pay premiums. As with any other type of insurance, you have to make sure you can afford your monthly premiums. Depending on the types and amounts of coverage you buy, premiums may range from under $100 to several hundred dollars per month 
• You encounter a covered event. If a loss or damage covered by your policy does occur, you’ll need to document any damages and records of any losses. 
• You file a claim. When filing a claim, provide detailed information about the event and any related damages. This can include photos of the damage, repair cost estimates, invoices, and more. Once you provide this information to your insurer, it will review the claim and determine if it’s covered by your policy.
• You get paid. If your insurer approves your claim, the company will reimburse you or pay for damages up to the limits of your policy, minus any applicable deductible. It’s important to note that some policies may have a waiting period before you can make a claim and receive payment, so read your policy carefully and understand what the process is in case of an unexpected event.

Types of Business Insurance Coverage

There are many different types of business insurance and each one protects a business and its owners against a different set of risks. Below are some of the most common types of business insurance:

General liability

General liability insurance provides protection against claims of negligence or faulty workmanship. This coverage can help protect your business from costly lawsuits, medical expenses, property damage, and other liabilities resulting from accidents that occur on business premises or when conducting business operations off-site.

General liability insurance is particularly important for businesses operating in highly litigious industries where accidents or injuries are more likely to occur. It can also be useful for businesses that face potential property damage from operations, as it can help cover the costs of repairs or replacements if an accident happens. However, general liability is a core coverage that pretty much any business that interacts with the business should probably carry.

Commercial property

Commercial property insurance provides coverage for damage to a business’s physical assets, such as its building and any equipment it owns. This coverage can help protect against losses from fires, theft, or other disasters. It also covers the cost of repairs or replacement of lost or damaged items.

Commercial property insurance is important for any business that owns physical assets, as it can help cover the cost of repairs or replacements if an accident happens. It’s particularly useful for businesses that have an elevated risk of incurring property damage, such as those in the construction and manufacturing industries. 

Business owners policy (BOP)

A business owners policy (BOP) is a package policy that combines multiple types of coverage, including general liability and commercial property coverage. This type of policy provides all-in-one protection against liability and property damage, helping to streamline costs and simplify the process for businesses.

A BOP is especially useful for businesses that face multiple risks, as it provides comprehensive coverage in one policy. This type of policy can be essential for retail, hospitality, and construction businesses, where both liability and property losses go hand in hand. It also provides protection against potential lawsuits or other liabilities that may arise from business operations.

Workers’ compensation

Workers’ compensation insurance provides protection against financial losses resulting from workplace injuries or illnesses suffered by employees. This type of coverage can help cover medical expenses, lost wages, and legal fees if an employee is injured while on the job.

Workers’ compensation is legally required in all states except Texas for businesses with employees. It’s especially important for businesses that are more likely to have a higher risk of employee injury or illness, such as construction or manufacturing. It can also provide peace of mind for companies with employees who are required to travel or work off-site. 

Employment practices liability insurance (EPLI)

Employment practices liability insurance (EPLI) provides coverage for businesses against claims of wrongful termination, discrimination, sexual harassment, and other employment-related liabilities. This type of insurance can help protect against financial losses resulting if a business’s employee is harassed or discriminated against by a manager or customer.

EPLI is particularly important for businesses with multiple locations or layers of management, increasing the risk of employment-related liabilities. It can also protect against costly legal fees and settlements resulting from employment-related lawsuits.

Professional liability 

Professional liability, also called errors and omissions insurance, provides protection against claims of negligence or faulty workmanship resulting from professional services provided by a business. This coverage can help protect businesses from costly legal fees and settlements resulting from errors or omissions in the course of providing such services.

Professional liability coverage is particularly important for businesses operating in industries where errors or omissions are more likely to occur, such as consulting or legal services. It can also provide protection against claims from customers or suppliers if an employee has mishandled finances or other business matters. This type of coverage is essential for protecting businesses from the financial burden resulting from professional negligence.

Commercial auto

Commercial auto insurance provides coverage for a business’s vehicles, including cars, trucks, vans, and trailers. This type of policy can help cover the costs of repairs or replacements if an accident happens while an employee is operating a company vehicle. It also covers legal fees and settlements resulting from injury or property damage caused by a company vehicle.

Commercial auto insurance is essential for any business that owns or leases vehicles, as it can provide protection against the financial burden resulting from an accident. It’s particularly important for businesses operating in industries where employees are regularly required to drive company vehicles, such as transportation or delivery services. This type of coverage can also protect against liability claims if a customer is injured while using a company vehicle.

Inland marine

Inland marine insurance provides coverage for property that is moved from place to place, such as equipment or vehicles. This type of policy can help cover the cost of repairs or replacements if an accident happens while a business’s property is in transit. It also covers legal fees and settlements resulting from injury or property damage caused by the movement of goods.

Inland marine insurance is particularly important for businesses that regularly move property from one location to another, such as construction or delivery services. This type of coverage can help protect against the financial burden resulting from an accident involving a business’s property while it is in transit. It can also provide protection from liability claims if a customer's belongings are damaged while in transit.

If you want to learn more about different types of insurance and other topics that impact your small business, subscribe to our newsletter. You’ll also get $10,000 in AD&D coverage, just for signing up.

Small Business Insurance Costs

The cost of small business insurance varies depending on the type and amount of coverage needed, as well as several personal factors, including industry, location, number of employees, and claims history. It’s important to do research and compare quotes from multiple providers to make sure you get the best rate for coverage. 

The direct costs of business insurance come in two forms:

• Premiums. Businesses pay premiums to insure their business assets and operations against potential losses. Premiums are typically paid on a monthly or annual basis.
• Deductibles. A deductible is an amount of money that a business must pay before the insurance company begins to cover any losses or damages. Generally, deductibles are based on a percentage of the policy’s total cost and can range from 1% to 10%. By choosing a higher deductible, businesses may be able to lower their premiums, but they’ll also face higher out-of-pocket in the event of a claim.

Why Business Insurance Is Important

Having appropriate and adequate business insurance coverage is an important part of running a business. It can help protect against unexpected losses from property damage and also guard against liabilities that can arise in the event of a workplace accident. Additionally, having the right coverage in place can help businesses stay compliant with government regulations and legal requirements.

Investing in the right type of business insurance can be essential in protecting a business’s assets. Businesses should consider their unique needs and risk factors, as well as any applicable laws or regulations when selecting the right insurance policy for them. Working with an experienced professional can help business owners make sure they get a policy that meets their needs and budget.

If you need insurance for your business or want to learn more about how different types of coverage can help protect you, contact The Hartford today. The company’s knowledgeable representatives can help you identify the right coverage for your needs.