Business-insurance · Supporting
Insurance for small business owners: what you actually need
Last reviewed September 3, 20264 min readBy the Goodsurance editorial team Reviewed by the Goodsurance editorial team
Only 49.2% of new small businesses survive five years, according to SBA data averaged across cohorts from 1994 to 2022. At year 10, just 33.9% remain. Insurance cannot change that survival curve, but the absence of the right coverage can transform a recoverable incident into a permanent closure.
Why insurance gaps threaten small business survival
The SBA's 2026 data shows 36.2 million small businesses operating in the US, accounting for 99.9% of all firms. But 82.3% of those businesses have no employees at all. That means most small businesses are solo or micro operations where a single lawsuit, a property loss, or a cyber incident can exhaust all available reserves with nothing left to rebuild.
The specific risk profile for any small business depends on industry, location, and how the business interacts with customers, employees, and the public. But most share a common vulnerability: they are underinsured not because coverage is unavailable, but because the gaps are invisible until a claim arrives.
Most US small businesses run with no employees and no financial backup if a loss strikes
The core policies most small businesses need
Small business coverage is assembled from multiple policies rather than purchased as a single package. Each addresses a distinct category of risk.
General liability insurance covers third-party bodily injury and property damage claims. If a customer is injured on your premises or you damage a client's property during a job, general liability responds. Most commercial leases require it as a condition of tenancy.
Commercial property insurance covers your physical assets, including equipment, inventory, and the space itself, against fire, theft, vandalism, and covered weather events. If you own your building, coverage needs are broader. If you rent, you typically need coverage for the contents you own.
Business owner's policy (BOP) bundles general liability and commercial property into one package, usually at a lower combined cost than purchasing them separately. Carriers typically limit BOP eligibility by industry and firm size, so not every business will qualify.
Professional liability insurance, also called errors and omissions (E&O), covers claims that your advice or services caused a client financial harm. It applies to consultants, accountants, designers, contractors, and anyone whose professional judgment a client could dispute in court.
Commercial auto insurance applies when vehicles are used for business purposes. Personal auto policies typically exclude business use, leaving an owner personally exposed for incidents that occur while driving for work.
Depending on your industry, you may also need product liability, inland marine, or umbrella coverage. A licensed commercial insurance broker can map your actual risk profile to available policies and flag requirements you may not know exist.
Workers' compensation: what the data shows
If you have employees, workers' compensation is mandatory in most states. It covers medical expenses and lost wages when an employee is injured on the job and protects employers from most personal injury lawsuits filed by employees.
According to the National Academy of Social Insurance, employers paid an average of $0.98 in workers' compensation costs per $100 of covered payroll in 2023, across about 150 million covered jobs and $11 trillion in covered wages, with $64.1 billion in benefits paid that year.
That $0.98 average varies significantly by industry. High-hazard sectors such as construction and logging carry much higher rates than office-based businesses. Your state's rating system, your claims history, and how your employees are classified all shape your actual rate.
Solo business owners with no employees are generally not required to carry workers' comp, but some states require it even for sole proprietors in specific industries. Your state's workers' compensation board is the authoritative source for your requirements.
Employers paid $0.98 per $100 of covered payroll on average in 2023, with significant variation by industry
Cyber exposure and how to size your total risk
Small business owners sometimes assume cyber insurance belongs to large enterprises. The claims data does not support that assumption.
The FBI's Internet Crime Complaint Center reported $20.877 billion in US internet-crime losses in 2025, across 1,008,597 complaints, an increase of 26% year over year, with an average loss of about $20,699 per complaint. Business email compromise (BEC), a fraud type where criminals impersonate executives or vendors to redirect payments, accounted for $3.05 billion in losses from 24,768 complaints, averaging about $123,000 per complaint.
Small businesses are frequent BEC targets because they often lack the internal authorization controls that larger organizations use to catch fraudulent payment requests. A single successful attack can equal an entire quarter of operating revenue for a small operation.
Cyber insurance typically covers forensic investigation, notification costs, business interruption losses, and legal expenses following a breach or attack. Some policies also cover funds transfer fraud, the mechanism behind most BEC losses. Policy terms vary widely across carriers; read exclusions carefully before buying.
To assess your full exposure, work through four categories: legal liability to third parties (general liability and professional liability), your physical assets (property insurance), your people (workers' comp if you have employees), and your data and digital operations (cyber coverage). Most small businesses need at least the first two. Any business that stores customer data, processes payments, or relies on email for financial transactions should treat the fourth as a serious consideration, not a future upgrade.
Cost factors include your industry, location, annual revenue, claims history, and the coverage limits you select. A licensed commercial broker who can compare multiple carriers is the most reliable path to understanding what actually fits your operation and budget.
Common questions about IRMAA appeals
Quick answers, fast .
Tap any question to expand. Each links to a fuller standalone answer.
What is business interruption insurance?
Business interruption insurance helps replace the income your business loses when a covered event forces you to stop or slow down work.
Say a fire damages your store and you must close while it is repaired. Property coverage pays to fix the building. Business interruption coverage helps with the money you would have earned during that time, plus ongoing bills like rent and payroll. It usually applies only when the shutdown comes from a loss your policy already covers.
Does business interruption insurance cover a power outage?
It depends.
Many policies pay only when the shutdown follows direct physical damage to your own property from a covered cause. If a storm damages your building and you close, that often counts. If the power company loses service far from your site and nothing at your location is damaged, a basic policy may not pay. Some policies add coverage for utility service loss. Read your policy wording and ask your agent what triggers the coverage.
Who needs business interruption insurance?
Any business that would lose money if it had to close for a while may want to look at it.
That includes shops, restaurants, clinics, and small workshops with a fixed location and steady sales. A business that can keep working from a laptop anywhere may lose less. The key question is simple: if your doors closed for weeks, would rent, loans, and payroll still come due? If the answer is yes, this coverage fills that gap.
What is commercial auto insurance?
Commercial auto insurance covers vehicles a business owns and uses for work, like vans, pickups, and delivery cars.
It can pay for harm your driver causes to other people or their property. It can also help repair or replace your own vehicle after a crash, a theft, or a storm. The policy lists the vehicles and the drivers the business allows. Work driving often means longer hours and heavier loads, and the coverage is built for that use.
Does commercial auto insurance cover employees who drive for work?
Yes, in most cases, as long as the driver is someone the policy allows.
Business policies usually list covered drivers or describe a group, such as any worker with a valid license and your permission. If a listed driver crashes while working, the policy can respond. Drivers you left off on purpose, or people driving without permission, may not be covered at all. Tell your agent when you hire a driver or when one leaves.
What happens if an employee crashes a company van?
Report it to your insurer as soon as you can.
The insurer will look at the crash, the damage, and who was at fault. Liability coverage can pay for injuries and damage the driver caused to other people. If you carry coverage for your own vehicle, that part helps repair or replace the van. You still owe your deductible, which is the share you pay before the insurer pays. Reporting rules vary by state.
What is commercial insurance?
Commercial insurance is a general name for the policies that protect a business.
It is not one product. It is a set of coverages you can mix, such as protection for the property you own, for claims other people bring against you, for the vehicles your team drives, and for income you lose after a covered shutdown. Many small businesses start with a bundle and add pieces as they grow. What you need depends on what your business does.
Is commercial insurance required by law?
It depends.
Some coverages are required and some are not. States set their own rules, and those rules often turn on what your business does and whether you have workers. Landlords, lenders, and clients can also ask for proof of coverage before they sign with you. So even when the law is quiet, a contract may not be. Check the rules where you operate and read any lease or contract, since requirements vary by state.
Who needs commercial insurance?
Almost any business with property, workers, customers, or contracts has some risk to cover.
A home based shop, a food truck, a small office, and a builder face different problems, so their policies look different. Even a one person business can face a claim from a customer or lose tools it cannot afford to replace. A useful first step is to list what would hurt most if it went wrong, then match coverage to that list.
What does commercial property insurance cover?
It covers the physical things your business owns or rents, such as the building, tools, machines, furniture, computers, and the stock on your shelves.
It pays when a covered cause damages or destroys those items, like fire, storm, or theft. Some causes are left out, and flood and earth movement are common examples that need separate coverage. Signs, fences, and outdoor gear may need to be listed. Read the covered causes section closely.
Do I need commercial property insurance if I rent my space?
Yes, in most cases.
Your landlord insures the building itself, not the things you keep inside it. Your shelves, tools, computers, stock, and any work you paid for to fit out the space are yours to protect. Many leases also require you to carry coverage and to show proof. If a covered fire or storm damages your gear, your own policy is what replaces it. Ask your landlord what the lease requires before you pick limits.
What is workers compensation insurance?
Workers compensation pays for care and lost wages when an employee is hurt or gets sick because of the job.
It covers medical bills, part of the pay the worker misses while healing, and benefits for a family if a worker dies. In return, the employee usually gives up the right to sue you over that injury, which is why people call it the grand bargain. Each state sets its own rules, benefit levels, and claim process.
References
- SBA Office of Advocacy: Frequently asked questions about small business, 2026Business survival rates by year cohort, total firm counts, and employee composition across US small businesses.
- FBI Internet Crime Complaint Center: 2025 IC3 annual reportTotal internet-crime losses, complaint volumes, and category breakdowns including business email compromise for 2025.
- National Academy of Social Insurance: Workers' compensation benefits, costs, and coverage, 2023 dataAverage employer cost per $100 of covered payroll, total benefits paid, and system-wide statistics for workers' compensation in 2023.