What employers should know about small business insurance

Whether a business is a one-person operation or a growing team, the right coverage serves as a financial safety net, protecting organizations and personal livelihoods from costly claims when the unexpected happens.

What small business insurance can do

Cover unexpected costs

Even the most carefully run businesses face unexpected expenses that can strain cash flow or threaten operations entirely. A single customer injury, product defect or professional error can result in legal fees, settlements and medical costs reaching tens of thousands of dollars.

• Know the risks: Every business faces unexpected events, like a customer injury or a product problem, which can lead to sudden costs that are hard to manage.
• Be aware of costs: A single injury or damage claim can average around $30,000.¹
• Prepare for financial strain: Unexpected expenses can make it tough to cover the cost of payroll or inventory, and in some cases, it could threaten the business’s future.

Protect livelihoods

A business isn't just a source of income – it's a livelihood and often represents years of hard work, investment and dreams. Business insurance helps protect this investment by covering the assets, equipment, and operations that generate revenue. Essentially, it safeguards a person’s ability to continue earning income when covered events disrupt operations.

Set business owners up for success

In addition to protecting against disruptions, business insurance provides credibility and professionalism. Many clients, contracts and commercial leases require proof of insurance before working with a business, which makes coverage a key to unlocking new growth opportunities.

What business insurance is necessary?

The type of coverage needed depends on several factors, including industry, business structure, number of employees, location and specific risk exposures. Most small businesses benefit from a foundation of general liability insurance, commercial property coverage and workers' compensation if they employ people.

Business insurance may be required by law

Most states require businesses to carry certain coverages, such as workers’ compensation and disability insurance. Failing to comply can lead to fines or penalties, and more importantly, it leaves businesses exposed.

Some business insurance types are designed for specific industries

Beyond core coverage types, many insurance products address risks unique to specific industries or business models. For example, organizations that use vehicles to provide a good or service may need commercial auto insurance.

Working with an experienced and licensed insurance agency, such as Automatic Data Processing Insurance Agency, Inc. (ADPIA®), can help business owners get the right coverage mix for their specific business model and risk profile without paying for unnecessary extras.

What are the different types of small business insurance?

Most small business insurance types focus on core coverage that spans industries, but there are also specialized options that address risks unique to specific sectors. Understanding the different types of insurance products can help business owners build a comprehensive protection strategy that covers their most significant exposures without unnecessary overlap or gaps.

• General liability – Protects businesses from third-party claims related to bodily injury, property damage, and personal injury, covering legal fees and some medical expenses.
• Business owner's policy – Combines general liability and commercial property insurance into one cost-effective package that’s ideal for small to medium-sized businesses needing broader coverage.
• Workers' compensation – Offers medical benefits and wage replacement for employees injured on the job; typically required by law in most states.
• Commercial property – Covers buildings and their contents against risks, such as fire and theft, along with income loss due to business disruptions.
• Commercial auto – Covers vehicles used for business purposes, providing liability and physical damage protection; it is required for both company-owned and hired vehicles.
• Professional liability or errors and omissions (E&O) – Protects service professionals from claims of negligence or service failure, covering legal costs and settlements.
• Cyber insurance – Safeguards businesses against financial losses from data breaches and cyberattacks by covering response expenses, legal fees and lost income.
• Commercial umbrella – Goes beyond the limits of existing business liability policies, offering an additional layer of protection against significant claims and legal expenses.

How much does small business insurance cost?

Small business insurance costs vary significantly based on industry, location, business size, coverage types and claims history. A typical business owner's policy providing $1 million in liability coverage costs $141 monthly on average, while standalone general liability insurance averages $68 per month for most small businesses.²

• Industry risk level – Low-risk businesses, like consulting firms or accounting practices, generally pay substantially less than high-risk operations, like construction or tree services.
• Number of workers – Workers' compensation premiums are calculated based on payroll amounts and industry classification rates.
• Location – Businesses in high-crime areas or regions prone to natural disasters typically face higher premiums for property coverage.
• Coverage limits and deductibles – Higher liability limits and lower deductibles increase premiums, while lower limits and higher deductibles reduce costs.

How to get business insurance

1. Assess risk and understand coverage types

Evaluate the unique risks of the business. The assessment should include the organization’s industry, location and size, as well as any potential threats, like liability claims and property damage. Business owners may also want to research essential coverage options, such as general liability and property insurance.

2. Get insurance customized to the business

Every business is unique and so are its insurance needs. Licensed agents from ADPIA can work with business owners to create a tailored insurance package that fits their goals and budget, helping ensure they have the right protection to support growth.

3. Re-evaluate every year

Regularly reviewing insurance coverage is crucial to evaluate whether it aligns with a business's changing risks and needs. When partnering with ADPIA, business owners receive tailored guidance and ongoing relationship management, including consistent coverage reviews as their organization grows.

Need help? Contact ADPIA for a free insurance consultation

As an ADP affiliate that has supported over 200,000 businesses, we can tailor A-rated insurance solutions from our carrier partners to an organization's specific needs. The quote typically takes only 10 to 15 minutes and requires basic information, like industry, location and coverage requirements. Our agents also offer personalized guidance, identify coverage gaps and help ensure policies evolve with the business.

Get started with ADPIA

¹ The Hartford: Types of Small Business Insurance

² The Hartford: How Much Does Commercial Insurance Cost?

This article is intended to be used as a starting point in analyzing business insurance and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

Automatic Data Processing Insurance Agency, Inc. (ADPIA) is an affiliate of ADP, Inc. All insurance products will be offered and sold only through ADPIA, its licensed agents or its licensed insurance partners; One ADP Blvd. Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. Certain services may not be available in all states with all carriers. Some carriers may charge an additional fee for services. This information is not intended as tax or legal advice. If you have any questions, contact a tax or legal professional. ADP, the ADP logo and ADPIA are registered trademarks of ADP, Inc. Copyright © 2025 ADP, Inc. All rights reserved.