Small Business Insurance: Types, Costs, and What You Need
By BizCalculators Team · Last reviewed September 4, 2026
The essential small business insurance policies are general liability (protects against third-party injury and damage, $30-100/month for most small businesses), commercial property (covers your building and equipment), workers' comp (legally required if you have employees), and professional liability/E&O (for service providers). A professional office can expect to pay roughly 0.5-2% of revenue for core coverage.
Why Insurance Is Non-Negotiable
One lawsuit can end a small business. A customer injured on your premises, a mistake that causes a client financial loss, an employee hurt on the job — any of these can produce a claim that exceeds what most businesses could pay out of pocket. Insurance transfers that risk to an insurer for a predictable premium.
It's also a gatekeeper: landlords require liability coverage, clients put insurance requirements in contracts, lenders require it for financing, and every state requires workers' comp once you have employees. Operating without it isn't a cost saving — it's uninsured risk concentrated on everything you've built.
General Liability: The Foundation
General liability (GL) covers third-party bodily injury, property damage, and personal/advertising injury — the slip-and-fall, the damaged client property, the copyright claim. It also covers your legal defense costs, which can exceed the settlement itself.
For most small businesses, GL costs roughly $30-100 per month for a $1-2 million policy. Premiums depend on your industry, revenue, claims history, and location. High-risk industries — construction, manufacturing — pay more; low-risk service offices pay less. GL is the first policy every business should buy, even a solo freelancer.
Workers' Compensation: Required, Not Optional
Workers' comp covers medical care and lost wages for employees injured or ill on the job, and it's legally required in every state once you have employees — sole proprietors without employees are typically exempt. It also protects you: employees who receive workers' comp benefits generally can't sue you for the injury.
Costs are quoted per $100 of payroll and vary wildly by industry — an office role might be $0.25-0.50 per $100; a construction worker $5-15 per $100. For a $60,000 office employee, expect roughly $150-300/year. Contractors are your responsibility only if they're misclassified as employees — correctly classified 1099 contractors carry their own coverage.
Professional Liability (E&O) and Specialized Coverages
Professional liability, also called errors & omissions (E&O), covers claims that your professional advice or service caused a client financial harm. It's essential for consultants, accountants, designers, IT providers, and anyone selling advice or services — GL does NOT cover professional errors. Costs for small service firms typically run $300-1,200/year.
Depending on your business, you may also need: commercial property (your building, equipment, and inventory), commercial auto (any vehicle used for business), cyber liability (if you store customer data), and product liability (if you manufacture or sell physical goods). Review your exposures with a licensed agent once a year.
How to Buy the Right Coverage Without Overpaying
Start with the required and essential policies: general liability, workers' comp if you have employees, and professional liability if you sell advice or services. Add property insurance only if you own valuable equipment or inventory. Bundle core coverage into a Business Owner's Policy (BOP), which packages GL and property at a discount — typically 15-25% cheaper than buying separately.
Work with an independent agent who can compare multiple insurers, and get quotes from 3-5 carriers. Review your coverage annually as revenue and headcount grow — the biggest insurance mistake is being underinsured when a claim actually happens.
Frequently Asked Questions
What insurance does a small business legally need?
Workers' compensation is legally required in every state once you have employees. General liability isn't legally mandated but is universally required by landlords, client contracts, and lenders. Everything else — property, E&O, cyber — depends on your industry and exposures, though most businesses should carry general liability even if not required.
How much does small business insurance cost?
General liability runs about $30-100/month for most small businesses. Workers' comp is quoted per $100 of payroll and ranges from about $0.25 for office work to $15 for construction. Professional liability (E&O) for service firms typically costs $300-1,200/year. A professional office with core coverage often spends 0.5-2% of revenue on insurance.
What's the difference between general liability and professional liability?
General liability covers physical injury, property damage, and advertising injury — a slip and fall or damaged client property. Professional liability (E&O) covers financial harm from your professional advice or services — a client who loses money because of an error in your work. Most service businesses need both.
Do I need insurance as a sole proprietor?
Yes for general liability — a lawsuit targets you personally as a sole proprietor, so the protection matters even more. You typically don't need workers' comp without employees. Professional liability is also worth it if you sell services or advice, since one professional error can exceed what you could pay out of pocket.