Commercial insurance protects your small business from unforeseen circumstances and liabilities and gives you peace of mind in the event of an accident or loss. Yet more than half of small business do not have basic insurance protection for their small businesses, according to a TransUnion October 2022 report. Six out of 10 of those uninsured thought they didn’t need insurance, while a quarter said it was too expensive.

TransUnion director of commercial insurance Patrick Foy sees these trends echoed in early 2023 survey results, as well, and it worries him. “Think about it,” he said. “You can have just one misstep, and it could potentially result in a large liability claim that can threaten the investment you’ve made in your business.”

Foy understands that “insurance probably isn’t the first thing that comes to mind,” for those starting small businesses. At the same time, he said, “you want to make sure you have backstops to protect your financial interests in the event that things go wrong or are out of your control.”

And while small business owners may fret about the investment, “the relative cost of insurance for a small business is actually pretty low for the protections you’re getting,” he said. According to online small business insurance provider Insureon, the average cost of a general liability policy is $500 a year, and the average cost of a business owners policy, which often bundles general liability coverage with commercial property coverage, is $684 a month.

Foy’s top things to think about and consider when purchasing commercial insurance for your small business:

1. Identify the risks.

Before you purchase any commercial insurance policy, identify the risks your business faces. They include property damage, theft, employee accidents, lawsuits and other liabilities your business may be exposed to. Risks vary by industry. “If you’re starting up a food truck or working from home doing side work for clients, you naturally have different exposures,” Foy said. He suggested these questions:

• How are you interacting with your customers? Do you typically work with them on the phone, or are they coming to your building? If they’re coming to your building, do you have a physical location you need to protect?
• Do you have a vehicle that’s principally used for the business? Often, if you have an auto exposure, you need a commercial auto policy.
• Do you hold a lot of cash, and do employees that handle that cash? If so, make sure you’re protected against theft.

A lot of these are the same types of questions you’d ask related to your personal insurance policies. While it can seem overwhelming to identify the places you may have exposure, it helps, Foy said, “to break it down into manageable pieces.”

2. Think about the type of insurance you need.

Foy broke down the most common types of commercial insurance that small businesses invest in:

• General liability: This covers against claims of bodily injury or property damage that arise from a business’ operations, products or services. It’s typically one of the first types of insurance that small businesses should consider, as it provides broad coverage for common risks. “For a majority of folks, at a bare minimum, they should have a general liability policy that covers your most common liability exposures,” Foy said. General liability insurance may be the only commercial insurance some small businesses need.
• Business owners policy: BOP is designed for small and midsize businesses and provides a bundle of coverage options like general liability, property and business interruption. It can be a cost-effective and convenient option for small business owners, as it typically offers broad options at a lower premium than individually purchased policies. Look into this sort of coverage if you’re “operating out of a physical location where you may also have business inventory or equipment you want to insure,” Foy said.
• Workers’ compensation: “If you have employees, having workers’ comp is generally mandated for businesses above a certain size, depending on the state,” Foy said. Workers’ compensation insurance provides benefits to employees who are injured or become ill as a result of their jobs. It also can help protect your business from a costly lawsuit related to workplace injuries.
• Commercial auto: Commercial auto insurance covers vehicles used for business purposes, such as delivery vans, service trucks and company cars. Any small business that uses vehicles for business purposes, whether owned or leased, may need commercial auto insurance. This includes businesses that use vehicles to transport goods or equipment, provide services to customers or transport employees.

A lot of first-time entrepreneurs and small business owners assume they’re covered under personal insurance policies or homeowners insurance. Unfortunately, “personalized policies don’t typically cover business exposures,” Foy said.

3. Assess the insurance needs of your industry.

There may be specific requirements or regulations that companies within your industry need to comply with. For instance, businesses in the healthcare sector may require malpractice insurance, while those in construction may require builders risk insurance. And a beverage distributor might need to purchase 10 or 15 different types of policies, he said. An insurance broker or agent can help you understand your industry’s requirements.

4. Shop around.

Don’t settle for the first policy you come across. Compare policies from different providers to ensure you’re getting the best value for your money. The cheapest option is not always the best option. “Commercial insurance tends to be more about value versus price and making sure you have the right protections,” Foy said, “and that means you have to pay a little bit more to make sure you’re adequately protected.”

5. Understand the coverage limits and exclusions.

Some policies may not cover certain types of losses or may have limits on the amount they’ll pay out. “If you have a retail business and you’re selling a product and handling cash, you want to make sure that cash is insured” and that you have protections for things like employee theft and robbery, Foy said. With any insurance policy, it’s essential to understand the amount of coverage provided, including any limits and exclusions. If you’re unclear on any of these considerations or if you don’t understand any particular term or provision in your policy, ask your broker or agent to explain it in plain language. It’s better to be safe than sorry. “What you don’t want,” Foy said, “is to find out after the fact that you don’t have coverage for a certain type of claim and now your livelihood is threatened because you haven’t been adequately protected.”

6. Work with a reputable insurance agent and company.

A good insurance agent can guide you through the process of purchasing commercial insurance and help you identify the risks your business faces. They also can advise on the type of insurance you need and help you find the best policy. One way to suss out whether an insurance company really cares about small business clients is to click through its website. Some insurers, Foy said, “have very robust resources to educate customers on small business insurance and what sort of things you should be thinking about when you make purchasing decisions.” These are the ones “who are really trying to help out their customers,” he believes. In the end, though, the best insurance agent is the one “you feel most comfortable with and most connected to,” he said.

7. Review and update your policy regularly.

As your business grows and changes, so will your insurance needs. Review your insurance policy regularly and update it to ensure it still provides adequate coverage for your business, Foy said.

Buying commercial insurance is not a one-time decision but rather an ongoing process. As your business evolves, so too will the risks it faces. A proactive approach to managing your commercial insurance will allow you to rest easy knowing that your business is protected and prepared for whatever challenges may come its way, Foy said. And that sense of security can be priceless.