It’s said that small businesses are the backbone of the American economy. They're also a driving force for commerce in the Garden State: New Jersey has more than 861,000 small businesses, ranking 11th overall in the US.
If you’re one of the state’s many small business owners, you probably have a lot on your plate. But it’s critical that you take time to understand your insurance needs and get coverage to protect your business in the event of a theft, storm damage, accident, employee injury, or lawsuit.
Let's review some insurance coverages that small business owners should consider. Note that our descriptions are generalized, and some coverage differences may exist between insurance companies. You should understand exactly what your small business insurance does and doesn’t cover before you buy a policy.
Most common types of business insuranceThere are three essential types of insurance that most small businesses need. These provide coverage for many common situations.
General liability (GL) insuranceGL insurance provides financial protection if your business causes harm to a third party (customer or general public). These “harms” may include a bodily injury or death, property damage, reputational harm, or advertising injury (such as copyright infringement).
As of November 2022, all landlords and business owners in New Jersey must carry $500,000 in liability coverage for bodily injuries and deaths that occur on their property.
You may also need to show proof of GL insurance for some business contracts or some types of professional licenses. If you rent space for your business, your landlord may require you to have the coverage.
Business property insuranceBusiness property insurance (sometimes called commercial property insurance) helps reimburse you if your physical location and tangible equipment are damaged, destroyed, or stolen.
Items covered by business property insurance typically include:
Business interruption coverage helps reimburse lost income if you’re forced to shut down operations due to severe weather damage, theft, or other covered loss.
Here’s an example: A severe storm damages mowers and other equipment owned by a landscaping business. The owner’s property insurance will help cover the cost to repair and replace the equipment. However, it will take two days before that equipment is replaced and up and running again. Business interruption coverage would therefore help reimburse the owner for any income lost in those two days.
Business interruption coverage may also help the business pay its rent, make loan payments, provide employee payroll, or pay for relocation expenses if the business is forced to move to a temporary location.
Combining essential coverages in a business owners policy (BOP)Many insurance companies offer BOP. This is a package of the three essential coverages — GL, property insurance, and business interruption coverage — usually marketed to small- to medium-sized businesses.
A benefit of buying a BOP is ease of use. There's just one policy to buy instead of three, so reviewing your coverage needs is easier. You may also pay less overall.
While BOP can simplify getting the essentials, these policies may not have all the additional coverages your business needs. Most insurance companies allow you to customize a BOP policy by adding coverages as riders or endorsements. We’ll review some of those additional coverages next.
Other types of business insurance coverages to considerNo two businesses are exactly alike, and no two businesses’ insurance needs are exactly alike either. So there are many additional coverages you should consider based on your insurance needs.
Workers’ compensation insuranceWorkers’ compensation coverage pays for medical expenses, lost wages, and rehabilitation expenses for employees who are injured or become ill on the job. Additionally, if an employee is killed on the job, it typically also pays a death benefit to the family.
New Jersey law requires employers not approved for self-insurance to have workers’ compensation coverage. So, unless you have enough funds reserved to pay workers’ compensation benefits out of pocket, you’ll likely need to purchase this coverage for your employees.
Professional liability insuranceSometimes referred to as Errors and Omissions (E&O), professional liability insurance protects accountants, doctors, lawyers, and other professional service providers if they're sued by their clients for negligence.
Employment practices liability insurance (EPLI)EPLI protects business owners if current or former employees sue them for discrimination, wrongful termination, harassment, or other issues. These are among the most common types of lawsuits faced by businesses.
Cybersecurity insuranceCybersecurity insurance (sometimes called data breach insurance) covers cyber-attack costs. These costs may include recovering and replacing lost/stolen data, customer notification, and legal counsel.
Commercial auto insuranceCommercial auto insurance covers vehicles the company owns, leases or rents, and employee drivers. While similar in many ways to personal auto insurance, with essentials such as liability and optional collision and comprehensive coverages, it’s designed for the needs of businesses.
All commercial vehicles registered or principally garaged in New Jersey are required to have insurance.
Commercial umbrella insuranceUmbrella insurance is an added layer of liability coverage that comes into play if a claim exceeds a policy’s standard liability limits.
For example: A building construction contractor has GL with a $1 million limit and an umbrella policy with a $5 million limit. An employee causes a building fire leading to $1.5 million in damage. GL covers the damage only up to its coverage limit. So without the umbrella policy, the business owner would be responsible for the $500,000 shortfall. However, with an umbrella, the insurance company would cover the total cost of the damage.
Directors and officers (D&O) liability insuranceD&O liability insurance protects the personal assets of a company’s directors and officers if they’re sued by employees, vendors, investors, customers, competitors, or others for acts including the following:
Product liability insurance covers a business if its product injures (or causes other damage to) a customer or other third party.
Key person insuranceKey person is a type of life insurance that a small business can buy for the life of an owner, founder, or other "key person" who's instrumental in running the business. The business is the beneficiary and receives payment if that key person dies. This death benefit gives the business time to find new leadership, alter its strategy to continue operations in the key person’s absence, or shut down.
Inland marine insuranceInland marine insurance protects a business's property if it's transported overland by truck, train, or other transport. If the property is damaged or stolen, inland marine helps reimburse the business.
Inland marine is intended for high-value or unusual items that property insurance may not cover. Such items include electronics and communications equipment, construction equipment, or medical and scientific equipment.
How to choose and get business insuranceWhen shopping for small business insurance, first ensure you have any legally required coverages. Then make sure your policy is matched to your company’s unique needs. A machine shop, for example, will likely have very different insurance needs than a florist or a plumber. Consider your company’s assets and potential liabilities, choose coverages based on those considerations, and spend time shopping around to get the best combination of coverage and price.
Some companies, including Next Insurance and Hiscox, offer online quotes. This means you can shop around anytime without leaving your desk.
But considering the stakes — the financial well-being of your business — you may owe it to yourself to consult with an insurance agent specializing in small business insurance. Independent agents represent multiple insurance companies and can ensure you get the necessary coverage. You'll save time and be confident your business is properly covered.
Frequently asked questions: Insurance for small businessesWhat is business insurance?Business insurance provides financial protection if an enterprise is damaged by fire or weather, victimized by theft, or held liable for a third party's injury or property damage. It may also compensate employees who are injured or become ill while on the job, or protect the business from lawsuits.
What type of business insurance is the most important?Most businesses should strongly consider general liability insurance, property insurance, and business interruption coverage. Certain businesses may also be required by law to have coverages such as workers’ compensation or commercial auto insurance.
What is the difference between LLC and liability insurance?A limited liability company (LLC) separates a business owner's personal and business finances. This protects the owner's personal assets from any lawsuits and debts owed by the business. However, an LLC is not liability insurance. Liability insurance provides financial protection to the business if held responsible for a third party's injury or damage.
Can you claim your business insurance on your taxes?Business insurance may be a deductible expense on your tax return. Consult with a certified tax preparer at tax time to ensure your return complies with current IRS rules for business expense deductions.
