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Understanding Business Insurance for SMBs

At a glance:

Business insurance can be complicated, and it’s ok to be a little confused. Whether you’re searching for a new policy or it’s time to renew an existing policy, a little background knowledge will make you more informed and positioned to secure better rates when you decide to get coverage.

Read on to learn about some business insurance basics then check out CoverHound to explore resources for small business owners to plan, prevent, and insurance against the unexpected.

Understanding business insurance - The basics

In its most general form, small business insurance protects small businesses from being hit hard by financial loss. Relationships with your customers, employees, and even business partners can quickly turn sour, whether through miscommunication or even equipment failure.

Covering Liability

General liability insurance is important for businesses at every growth stage that covers legal fees resulting from accidents, negligence, and injuries. One unfortunate accident in your office and you could be facing an injury lawsuit. Commercial spaces often require a certain amount of this coverage before you sign the lease.

Protecting Property

One of the biggest expenses for any business is the equipment they need to operate. If you have physical property that could be damaged, you’ll want to insure it under your business plan. What can property coverage entail? Many instances could lead to property damage including fire, smoke, wind and hail storms, civil disobedience, and vandalism. It’s wise to protect your equipment against scenarios like this with commercial property insurance and to note that many policies cover lost income resulting from interruptions in business due to property damage.

Insuring Products and Services

Offering a product or service to the world does not guarantee that it will work perfectly 100 percent of the time even after extensive product trials. Your liability coverage is important in protecting you from damages potentially caused by your offerings. 

Protecting Employees - Workers Compensation

Workers compensation is crucial for protecting your team and your overall organization. Whether an employee suffers an injury on the job or needs medical attention for a long-term problem like carpal tunnel syndrome, workers' compensation coverage will address these claims.

Protecting Yourself - Professional Liability aka Errors & Omissions

Professional liability insurance, commonly called errors and omission (E&O) coverage, differs from general liability insurance. It covers intellectual property, privacy, and Internet services negligence that causes a third party financial or other non-tangible loss. Businesses that engage in fields like consulting or advertising will want to pay special attention to their professional liability plan.

Understanding Commercial Insurance Deductibles

A deductible is the amount of money you pay out of pocket before your insurance policy kicks in for a covered claim.  

One of the most commonly employed tactics to reduce your business insurance cost is carrying a high deductible. Choosing to assume more risk means you pay less in premiums. However, should disaster strike, you'll find yourself on the hook for a larger portion of repair and rebuilding expenses. So, how should you approach balancing your commercial insurance deductible with your premiums? Use this guide to learn more about mitigating risk and setting an appropriate deductible.‍

Rating Exposures‍

Insurers evaluate some factors to determine an appropriate premium for businesses. These elements are known as rating exposures. Here are just a few of the factors they may include in their ratings, depending on the policy type:

Essentially, insurance companies must first assess your risk level so they can assign a fitting premium and minimum deductible later.‍

Premium Calculations‍

After identifying rating exposures, carriers calculate premiums by multiplying their rate for coverage by the degree of determining exposure. The product of this multiplication is the annual premium, which is divided into 12 installments if you opt for monthly payments.

But wait—the cost of your policy is not quite set in stone. First, you have to set a deductible.

Deducible Considerations‍

One of the most important factors to consider is your average cash flow. If you can comfortably accommodate a large deductible without compromising your ability to meet other expenses, you're set. Assuming more risk will lower your monthly or annual payments.

On the other hand, some losses are tax-deductible, while the amount of a premium you didn't pay isn't. In other words, you could be putting yourself at a tax disadvantage with a large deductible. How low or high you set your deductibles depends on your cash flow, property value, and more. It helps to compare commercial insurance policies to see what's out there. Explore your options with CoverHound—for free!

Commercial Auto Insurance

Some vehicles are designed and built specifically for commercial usage. These typically belong to a company or a corporation. They may also be owned or leased by individuals with the specific intention of using them for business. If an automobile is designed to carry 15 or more people, it is automatically considered a commercial vehicle. Similarly, models exceeding certain weight classes, as well as those used to haul hazardous materials, fall into the category as well.

When your business depends on the transport of people or goods from point A to point B, you should be ready to encounter anything out on the road. From inclement weather to animal crossings, irresponsible maneuvers by other drivers, and many more unpredictable factors, there’s no true way to make sure that every journey unfolds without incident.

For protection against the unknown, there’s no substitute for commercial auto insurance. But have you ever wondered how your rates are calculated? While driving carries many unknowns, you may be surprised to find that you have control over some of the factors that insurance providers use to calculate your premiums.‍

Vehicle Type and Use‍

Commercial auto insurance policies vary depending on the number and type of vehicles that are covered. Carriers use the classification and function of commercial vehicles to help assess risk and premiums. Rates will also vary based on the purpose of your company’s vehicles.


Who will be allowed behind the wheel of your commercial vehicles? The driving history of your employees and associates will ultimately impact your auto insurance rates. As a business owner, you are responsible for collecting and providing the driver’s license numbers of every person who will be covered under your policy. From there, carriers will check driving and claim history to assess the likelihood (or risk) of a claim being filed. If you work with lower-risk drivers, you may see substantial savings in your premiums. Hire wisely when considering who will get the keys to any company vehicles.‍


Where you drive ultimately affects how much risk you present to carriers. Driving down a country road is going to look and feel much different than trying to maneuver through a city at rush hour. Therefore, the ISO breaks down different states and regions into rating territories.

Some examples of territorial differences could be the contrast between a busy metropolitan and a completely rural area, or a coastal region versus a landlocked zone. The who, what, and where of driving come together to help determine your commercial auto insurance rates.

Cyber Insurance

In its most general form, cyber liability insurance is an insurance policy that covers a business’s digital property and liability losses that result from a data breach or hack by an unauthorized source.

Cyber insurance, but is not limited to:

As a business owner, you may feel that you and your employees are safe from cyber attacks. Who would go after a small company anyway when there are bigger fish to fry? Hackers don't care, they're going to go after the easiest target. That usually means small and medium-size businesses that don’t have robust cybersecurity protocols in place.

Insurance shopping simplified

Review personalized quotes, select coverages, and buy online - Everything insurance, all-in-one-place.

Insurance shopping simplified

Review personalized quotes, select coverages, and buy online - Everything insurance, all-in-one-place.

Insurance shopping simplified

Review personalized quotes, select coverages, and buy online - Everything insurance, all-in-one-place.
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