Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 8 minutes
Key Takeaways
- Every small business, including one run by Elon Musk, needs essential insurance coverage to protect against various risks.
- Key types of coverage include general liability and workers’ compensation, among others.
- Business Owner’s Policy (BOP) offers a convenient all-in-one solution for startups, combining general liability and property insurance.
- Cyber liability insurance is crucial, as small businesses face significant risk from cyberattacks.
- Most businesses remain underinsured, which can lead to financial distress in the event of unexpected incidents.
What if Elon Musk weren’t operating a massive Austin-based company, but instead a small business out of an average-sized Ohio warehouse? I imagine his warehouse would reflect that of many small businesses in the U.S.: a cluttered workspace, a limited number of employees, poor storage systems, dated equipment, inadequate housekeeping, and limited cash flow.
He might call me up one day after a storage fiasco. One of his shelves crashed, resulting in damaged goods and operational disruptions. He asks if he has insurance to cover this expensive mishap.
I’d explain to him, as I would to any small business owner: it depends on the type of coverage you have.
Here, we’ll talk about the types of insurance coverage you and Elon would need as a U.S.-based small business.
1. General Liability Insurance
General liability is one of the most common and useful coverages, and it may be legally required for certain trades in some states, depending on the class of business and other factors.
This type of insurance provides coverage for third-party injury or property damage. A customer trips inside your store? One of your employees accidentally damages a client’s window when swinging a tool? That’s where this coverage comes in.
If you’re still not convinced you need general liability, take it from one of my clients who runs an HVAC company. A client’s home was accidentally flooded during an installation. The damages ended up costing over $100,000. Luckily, his general liability covered his claim, subject to the policy deductible.
Elon would also want to be covered under this insurance. An accident, such as a vendor slipping or falling in his warehouse, could happen at any time.
2. Property Insurance
Businesses, both big and small, typically have thousands of dollars’ worth of equipment, supplies, and inventory. A fire may be covered under commercial property insurance, but damage caused by mechanical or electrical breakdown is often covered under equipment breakdown coverage (sometimes added as an endorsement).
Commercial property insurance typically covers perils such as fire, theft, and vandalism (subject to policy terms), but flood and earthquake usually require separate insurance. Commercial property policies commonly exclude flood and earthquake, which typically require separate coverage or endorsements, depending on your insurer and state. Imagine thousands of dollars worth of your stock, appliances, and tools all being permanently damaged by a disaster, theft, or vandalism. It may take months or years to get back on its feet because of that single claim.
3. Business Owner’s Policy (BOP)
Say Elon was running his small warehouse with his own money, without external funding. This is how many small, new businesses start. Some even run like this for years.
This is where a Business Owner’s Policy (BOP) would come in handy. A BOP typically bundles general liability and commercial property coverage and often includes business income (business interruption) coverage. Some insurance carriers also offer optional add-ons, such as equipment breakdown coverage.
To date, I’ve helped many small businesses like yours get a BOP. Say a locally-owned boutique catches fire, causing both inventory and property damage. They had to close for a few months. If they had come to me for a BOP before the event, they would have had coverage for property damage and business interruption. Fortunately, there were no customer injuries, but if there had been, their BOP would have covered the costs as well.
4. Workers’ Compensation
Workers’ compensation is required in most states once you have employees, but the rules, thresholds, and exemptions vary by state and industry. In Ohio, most employers with one or more employees must obtain workers’ comp coverage through the Ohio Bureau of Workers’ Compensation (BWC)
Workers’ comp helps cover medical bills and lost wages when an employee gets hurt at work.
This doesn’t just come in handy in “freak accidents.” It can also help cover simple mistakes, like a slip-and-fall, that end up costing thousands of dollars in medical bills.
5. Cyber Liability
If Elon were selling his products online from his “Ohio warehouse” or even just storing client data on his computer, he would want to be covered under cyber liability insurance.
Isn’t this for big businesses, you might ask? Absolutely not. Small businesses may also be at risk.
6. Professional Liability (E&O)
Do you provide consults, create software, manage IT systems, or advise clients? If so, you would benefit from professional liability (E&O) insurance.
This type of coverage protects you if a client claims they were financially harmed as a result of your service or product.
In Elon’s situation, say he gave engineering advice to another business. If it resulted in a design flaw, they could file a lawsuit against Elon.
Legal professionals, financial advisors, real estate agents, coaches, advertising creatives, and even healthcare professionals can also benefit from this type of coverage.
7. Commercial Auto Insurance
A common example would be a business owner hiring an internal team to deliver parts or pick up supplies for the company’s warehouse. Vehicles titled to the business should be insured on a commercial auto policy and not under the owner’s or the employees’ personal auto insurance policies.
Commercial auto will cover the claim in case of a work-related car accident. This includes medical bills, damages, and legal costs.
I’ve seen the unfortunate outcomes for small business owners who were involved in a collision without commercial auto insurance. Whether they used a commercial vehicle or their personal car for deliveries, their personal auto insurance refused to cover the costs. Many personal auto policies can cover some business use but commonly exclude delivery/for-hire, livery, and certain regular commercial uses. Check your policy wording and coverages for accuracy.
8. Product Liability
If you sell physical products, you can be held liable for injuries or property damage, even if you didn’t manufacture them. If an item causes harm to a customer or damages their property, you’re footing the bill unless you have liability insurance.
If you sell physical products, you may need coverage for products and completed operations. One defective battery pack could lead to serious liability risks. Product liability primarily addresses bodily injury and property damage claims arising from products.
For many businesses, product liability coverage could easily save them from the hundreds of thousands of dollars in damage that typically comes from claims like these.
It would likely be the same in your case. Even if you think your products are completely safe, there may still be risks, from design defects to inadequate instructions.
9. Business Interruption
Natural disasters, from floods and fires to regional issues like power outages, don’t discriminate. They happen when they happen, even if they affect the operation of your business.
Unfortunately, every business deals with rude interruptions like these. But life goes on, and bills still need to be paid. So, how do business owners come out of this mess?
They get through it with business interruption coverage. If there is a power outage, for example, and a utility services endorsement is in place, coverage should apply to claims arising from the outage.
10. Directors & Officers (D&O)
D&O can cover defense costs (and sometimes settlements) for alleged wrongful management acts, but policies commonly exclude intentional fraud or criminal conduct (terms vary).
Coverage Levels Based on Business Size
| Stage | Coverage | Why |
| Startup | General Liability, Property, Workers’ Comp | Protect people and property from day one. |
| Growth | Cyber, E&O, Business Interruption | Risks multiply with clients and digital systems. |
| Expansion | Product Liability, D&O, Higher Policy Limits | More products, partners, and investors = more exposure. |
Most Businesses Aren’t Adequately Insured
With so many unexpected risks in life, multiple surveys suggest underinsurance is widespread among U.S. small businesses, from small to large.
Maybe they think one of their current insurance policies will cover more than it actually does. Perhaps they assume they can’t afford more insurance. In other cases, they may not know what types of coverage they truly need.
Then there are business owners who think their business is too small to deserve “extra” insurance.
The reality is that being underinsured is one of the biggest gambles a business owner can take.
I knew a coffee shop owner who learned the hard way. A burst pipe in his espresso machine caused tens of thousands of dollars in damage to his storefront. He thought his landlord would cover the costs, but it was all on him. If he had the right coverage, this costly situation could have been far less costly and less stressful.
How Much is Insurance for Business?
Insurance coverage for U.S. small businesses can vary. Generally, you can expect to pay:
- General Liability: $40–$70/month
- BOP (bundle): $80–$120/month
- Workers’ Compensation: ~$0.75 per $100 of payroll
- Cyber Insurance: $125–$250/month (depends on data size)
Costs vary by class code, payroll, location, policy limits, and claims history.
Skipping coverage can lead to costly consequences. The best route? Get the basic coverage you need ASAP, and expand your protection as your business grows. Lock in what you need now to avoid increasingly rising insurance premiums.
5 Key Takeaways
- Insurance is vital, not an option.
- You can save time and money with bundled coverage via a Business Owner’s Policy.
- A business’s risks change as it grows, so update your coverage annually.
- Be mindful of what you’re actually covered for. Being underinsured can be detrimental.
- These days, cyber and E&O insurance policies are necessary.
Why Turn to USA Business Insurance for Commercial Coverage?
USA Business Insurance understands the fiascos small businesses go through each year. Power outages, thefts, an injured employee, a data breach: there’s a lot that can go wrong — even if you solely operate online.
That’s why we go the extra mile to ensure small businesses and startups like yours are properly insured.
Whether it’s a bundle of coverage you need or you’re looking for a more affordable commercial auto insurance policy, we can help you out.
