Types of Small Business Insurance: An Overview

For small business owners, a supply chain disruption, tornado, or potential lawsuit aren’t just worst-case scenarios. 

They’re real threats that could jeopardize everything you’ve worked so hard to build. 

That’s why business insurance is a critical safety net for your SMB’s survival and growth.

The reality, though, is that many SMB owners find insurance confusing or cost-prohibitive. That’s understandable, given all the coverage types available, not to mention variables and fine print.

This guide is here to change that.

We’ll walk you through the essential types of small business insurance—including what they cover, why you might need them, and what coverage could cost. 

Finally, we’ll explain how to easily manage insurance premium payments without draining your cash flow.

Let’s get started!

What Is Small Business Insurance?

There’s a reason they call it “risky business.” After all, running an SMB comes with plenty of unknowns.

That’s where small business insurance comes in, helping to protect your company by transferring financial risk to an insurance provider.

Rather than paying out of pocket when the unexpected happens, you pay an upfront monthly or annual premium. If a “covered incident” occurs, your insurer will reimburse you for your financial losses.

Of course, many factors influence what coverage you need and how much it will cost. Your industry, business size, location, coverage limits, and even past claims can all affect your premiums. 

Moreover, not all SMBs need the same type of coverage.

That’s why it’s important to understand your options and choose coverage that fits your unique risks.

Below, we break down key types of small business insurance to help you decide what’s right for your business. 

Essential Liability Insurance

No matter your industry—retail, hospitality, construction, consulting or otherwise—if your SMB interacts with the public, sells products, or provides professional services, liability insurance is essential.

General Liability Insurance

Whether it’s a slip-and-fall, damaged property, or a claim of reputational harm, general liability insurance protects your small business from a wide range of third-party claims.

This type of insurance covers common, and often costly, incidents like: 

• Bodily or personal injury: A customer trips on a wet floor inside a café, breaking their wrist. With general liability insurance, the business covers the customer’s medical bills, which helps them avoid a costly lawsuit.
• Property damage: While repairing a pipe in a client’s home, a plumber causes flooding in the basement. Insurance reimburses repair costs, preventing the provider from paying out-of-pocket.
• Advertising liability: In its marketing, a landscaping business claims it is “the only certified eco-landscaper in town.” A competitor sues for false advertising and defamation. General liability insurance covers landscaper’s legal defense and settlement costs. 

On average, SMBs pay about $500 a year for general liability insurance. This is assuming that the small business is “lower-risk,” meaning it has limited in-person customer interaction and less likelihood of safety hazards.

However, annual premiums can exceed $2,000 for higher‑risk industries like bars or construction. That’s because these businesses have frequent public contact, physical labor, and greater chances of property damage or injury, which increase the potential for claims.

Ultimately, general liability insurance offers an affordable safety net that protects your SMB from costly lawsuits, medical expenses, and repair bills. Despite this, more than one-third of SMBs in the U.S. don’t have this type of coverage, leaving them vulnerable to potentially devastating financial setbacks. 

Professional Liability Insurance (PLI)

If the potential of making a costly professional mistake is keeping you up at night, you’re not alone. According to one recent survey, this is the leading concern for many SMB owners.

Unfortunately, mistakes can and do happen, especially if your business offers professional advice or services. The good news? Professional liability insurance can help protect you from the fallout. 

Here are some common small business scenarios where PLI can come in handy:

• Professional errors: An accountant miscalculates a client’s taxes. Penalized by the IRS, the client sues the accountant for damages. Professional liability insurance covers the cost of defending the claim, as well as damages.
• Failing to deliver: A client takes legal action against a business consultant after a restructuring plan doesn’t achieve its goals. With professional liability insurance, litigation fees and settlement costs are paid for.
• Negligence: A chiropractor is accused of worsening a patient’s back problems. The patient seeks compensation. Because the chiropractor carries malpractice insurance—a specialized form of PLI for healthcare providers—they don’t have to personally absorb the costs to defend themselves in court.

Typically, small businesses pay somewhere between $700 and $900 a year for professional liability insurance. That said, your industry is the most important factor in determining cost.

For example, a lawyer would face higher premiums versus a florist. That’s because a florist’s mistake would generally cost very little compared to a legal error, which can rack up hundreds of thousands of dollars. 

One other thing to keep in mind is that having additional employees can also push up your insurance rates. After all, the more people on your team, the greater the chances of mistakes happening.

With litigation on the rise across North America—especially in healthcare, legal and financial industries—PLI coverage is becoming increasingly critical for protecting your small business from costly claims.

Product Liability Insurance

Have you ever considered what could happen if one of your products were to harm others?

Keep in mind, it doesn’t matter if you didn’t make the product. From the moment it’s conceived to when it reaches the consumer, every business in that supply chain carries potential liability.

Here are some ways product liability insurance can shield product-focused SMBs from costly legal and financial setbacks:

• Bodily injury: A toy retailer ships products with a choking hazard. When a child is injured, the parents sue. Product liability insurance helps cover medical expenses for the child, the SMB’s legal defense, and any settlement related to the injury.
• Physical harm: Multiple people become sick after eating contaminated goods shipped by a food distributor. A class action suit is launched against the distributor as well as the manufacturer. Insurance helps cover shared liability and legal fees.
• Property damage: A space heater sold by a hardware store malfunctions and starts a fire, damaging a customer’s home. With insurance coverage, the store has the means to reimburse the customer for repairs and other related expenses.

SMBs that typically sell or distribute non-hazardous items with minimal risk may only pay a few hundred dollars per year. Conversely, SMBs that make or handle high-risk products like electronics, food, or industrial goods may face annual premiums of $3,000 or more.

Product type may also inflate pricing. For example, products like health supplements or medical devices may require additional coverage because of their greater potential for harm.

As innovation accelerates and products enter the market faster than ever, the risk of defects, malfunctions, or compliance issues is on the rise. At the same time, consumer protection laws are tightening, product recalls are more frequent, and legal action is increasingly common.

All the more reason to protect your SMB with product liability insurance.

Finally, never assume the manufacturer’s insurance policy will extend to you. Rather, purchasing your own coverage is a much smarter, more proactive safeguard.

Property Insurance

When an unexpected disaster brings your office, shop, or operation to its knees, the right coverage can help protect your SMB’s assets, cover repair or replacement costs—and keep income flowing during downtime.

Commercial Property Insurance

It feels like every day we’re hearing about some kind of storm, fire, or smash-and-grab hitting a local business.

Commercial property insurance protects your SMB’s physical assets from loss or damage caused by such events.

This insurance generally covers your building as well as its contents, from inventory and equipment to office furniture, computers, lighting, and even outdoor items stored on-site. 

Here are some real-world examples of how commercial property insurance can assist SMBs:

• Natural disasters: A construction firm’s office trailer and equipment are damaged during a devastating hurricane. Property insurance covers repairs and replacements, enabling the business to continue operating with minimal disruption.
• Theft/vandalism: A specialty bike shop is broken into. Many of its high-end bicycles are stolen, and display cases are damaged. Insurance helps cover the financial loss so the store can get back on its feet.
• Water damage: A burst pipe floods a small tech startup’s office, destroying laptops, servers, and desks. Commercial property insurance helps pay for replacements and repairs, preventing major out-of-pocket costs for the business.

On average, commercial property insurance typically costs SMBs about $800 per year. However, factors like operating in an older building, having expensive equipment, or being in disaster-prone states like Florida or California can push annual rates into many thousands of dollars. 

Ultimately, commercial property insurance ensures your business can recover quickly after a loss—but only if your coverage matches your property’s value. Around 75% of commercial buildings are underinsured, often leading to reduced payouts and SMB owners paying out-of-pocket. So be sure to get your valuation right from the very start. 

Business Interruption Insurance

What if your business had to close its doors for a week—or, yikes, even a month—because of an unexpected disruption?

When certain events force you to put your SMB on hold, business interruption insurance helps protect your income and operating expenses until you’re able to reopen. 

Here are a few real-world examples of how this coverage works:

• Structural damage: A truck crashes into a salon storefront, causing structural damage that requires the SMB to close for repairs. Business interruption insurance helps cover relocation expenses so staff can continue serving clients.
• Mechanical/equipment failures: A gym closes in the hot summer months after its HVAC breaks down. As repairs occur, insurance helps recover lost membership income, pay administrative staff, and cover regular expenses like rent and utilities.
• Supply chain disruptions: After a vendor hiccup delays critical deliveries, a restaurant temporarily halts its services. Business interruption coverage helps recover lost revenue and pay staff overtime to restore normal operations once supplies resume. 

Generally, small businesses pay between $500 and $2,000 per year for business interruption coverage. Businesses in higher-risk industries like construction or manufacturing may pay more, sometimes up to 10% of annual gross revenue, due to the increased risk of shutdowns caused by equipment failure or accidents.

Geography also matters. If your SMB is located in an area vulnerable to natural disasters like wildfires or hurricanes, you may face higher premiums. 

It’s important to note that business interruption insurance policies may not cover events like the COVID-19 pandemic. In fact, many insurers have restricted coverage for bacterial and virus outbreaks in recent years.

For many small business owners, a temporary closure can create serious financial strain. Thankfully, business interruption insurance provides a safety net so you can quickly get back to business with greater peace of mind. 

Workers’ Compensation and Health Insurance

Protecting your business team—not to mention your business—means preparing for the unexpected.

From workplace injuries to everyday health needs, these types of small business insurance can play a critical role in minimizing risk, reducing out-of-pocket costs, and supporting employee well-being both on and off the job.

Workers’ Compensation Insurance

Once you hire anyone, even part-time, you are generally legally required to provide workers’ compensation insurance—ensuring coverage for anyone who has a work-related injury or illness. 

Examples of workers’ compensation in action include:

• Medical bills and lost wages: A warehouse worker breaks their leg on the job. Workers’ comp covers their medical treatment and pays a portion of lost wages, saving the employer thousands of dollars they may have otherwise been sued for.
• Ongoing care and disability benefits: After experiencing workplace stress, a part-time landscaper develops a mental health condition. Workers’ compensation insurance helps cover therapy, treatment and disability benefits, ensuring the employee isn’t financially burdened as they recover.
• Death benefits: A restaurant employee dies in a car accident while making food deliveries. Insurance provides death benefits to the driver’s family to cover funeral costs and support loved ones during their time of grief.

As an employer, you are responsible for paying 100% of the premium costs. Typically, small businesses pay about $540 annually per employee. However, you may see rates as high as $2,000 in states like Hawaii, Wyoming, Rhode Island, Alaska, California, and Connecticut.

In addition to setting their own rates, each state has its own workers’ comp rules. Check with your state’s workers’ compensation office to confirm:

• Whether employee coverage is indeed required.
• How they define an “employee” at your SMB.
• What benefits must be offered.
• Where and how you can buy coverage.

While workers’ comp isn’t cheap for SMB employers, it significantly reduces legal risk. After all, workplace injuries are surprisingly common. 

In fact, one recent survey found that 75% of 1,000 small businesses experienced injuries in the past year.

Meanwhile, the average workers’ compensation claim costs around $41,000! Luckily, employees covered by workers’ comp generally cannot sue their employer for workplace injuries.

And what if you don’t have employees? While not mandatory, buying workers’ compensation can still be a smart move for SMB owners. That’s because personal health insurance often won’t cover injuries sustained while on the job.

Employer-Sponsored Health Insurance (ESI)

If you have fewer than 50 full-time employees, you have the option of providing health insurance to your staff.

This type of insurance helps reduce healthcare costs for workers while offering access to essential medical services. Some common scenarios may include:

• Medical care for unexpected illness: A bakery employee needs hospital care and follow-up treatment after developing pneumonia. Their employer-sponsored health insurance covers the hospital bills, doctor visits, and medications, easing the financial burden so the employee can focus on recovery.
• Ongoing treatment for chronic conditions: A part-time cashier at a local grocery store manages their asthma with regular doctor visits and prescriptions. Thanks to the SMB’s health insurance plan, these ongoing medical costs are covered, helping the employee stay healthy without the added financial stress.
• Family coverage during emergencies: Following an accident, the child of a wellness clinic employee needs emergency surgery. Family coverage through the employer’s health insurance helps pay for the hospital stay, surgery, and rehabilitation costs, ensuring the entire family is supported through a difficult time. 

While some SMBs pay the entire premium for coverage, employers are more likely to cover part of the cost, while employees pay the rest through payroll deductions. This makes offering coverage a more affordable option for businesses.

Still, this cost-sharing model can add up quickly on both sides. In a 2025 report by the U.S. Bureau of Labor Statistics, SMB owners paid an average of $1,232.59 per month (almost $15,000 annually) to cover family medical plans for their workers. In the same timeframe, workers contributed an average of $751.45 per month, or about $9,000 per year.

Generally, if you have fewer than 50 employees, you’re not legally required to offer health insurance. That said, providing it can make a huge difference in attracting and keeping employees. Small businesses that provide health insurance are.

While insurance premiums can be significant for SMBs, the longer-term benefits could eventually outweigh the investment.

Cybersecurity Insurance

Cybersecurity insurance, aka cyber liability or cyber risk insurance, provides a crucial financial safeguard for your SMB against digital criminals.

Every day, small businesses are under constant threat of cyber attacks—particularly those working in retail, healthcare, manufacturing, technology, or legal services. And the fallout can be enormous, with SMBs paying between $120,000 and $1.24 million to remedy a data breach.

Some potential scenarios where cybersecurity insurance may help SMBs include:

• Ransom recovery and system response: A ransomware attack locks a boutique’s website during a holiday sale. Cyber insurance helps the business afford a ransom payment, as well as IT recovery services and lost income. It also covers legal support to ensure the boutique is compliant with current data privacy laws.
• Customer breach response and legal support: After a hack exposes clients’ credit card information, a daycare center’s insurance policy covers PR services to manage reputational damage, as well as two years’ worth of credit monitoring services for each client.
• Business continuity and data recovery: A cyberattack disables a B&B’s reservation system right before a long weekend. Cybersecurity insurance pays for a forensic investigation, system restoration, lost wages, security upgrades, customer notifications, and help with regulatory response.

Many small businesses pay about $1,740 per year for a cyber liability policy. However, some lower-risk operations—those with fewer users, less sensitive data, and strong security controls—may secure premiums closer to $900 annually.

But, as with all types of small business insurance, industry can play a key factor in the final price tag.

With 6 in 10 SMBs reporting some form of cyber attack in 2025, and 60% closing within a half-year after falling prey, cyber security insurance is one of the few tools that can turn a devastating breach into a manageable setback.

How Revenue-Based Financing Can Help You Manage Insurance Costs

It shouldn’t come as a surprise that one of the biggest reasons SMBs go underinsured, or completely uninsured, is cost.

In fact, 53% of SMBs say business insurance is too expensive.

Adding insurance coverage to your budget can feel intimidating. After all, you don’t know whether you’ll ever need it.

And even when insurance is in place, premiums often take a big bite out of cash flow and operating budgets—especially for SMBs with tight margins or seasonal cycles.

There is good news, though. Your SMB doesn’t need to compromise major cash disruptions just to stay protected. Not with revenue-based financing (RBF).

In a nutshell, here’s how RBF works:

• A funder provides your SMB with a lump-sum payment.
• In exchange, you agree to repay the sum based on a percentage of your future sales, until a predetermined cap is met.
• As your revenue or sales fluctuate over time, your repayments are adjusted accordingly. If you have a slower sales month, you pay less; but if you have a more lucrative period, you pay more. 

Because revenue-based financing is designed to be flexible, SMBs can more easily manage regular premium payments and spread out the cost of business insurance in line with their income. 

Available through Bitty, our RBF solutions can help you afford the precise insurance coverage your business needs. 

No need to sacrifice your financial stability, daily operations, or future growth. Rather, Bitty gives you the breathing room to stay protected.

Bitty Helps SMBs Get Insured Without Breaking the Bank

Safeguarding your small business isn’t just about passion and hard work. It’s also about being prepared for the worst. 

From liability and property protection to cybersecurity and more, each type of small business insurance can play a vital role in helping your SMB ride out—and eventually overcome—unexpected challenges that come your way.

Still, we understand that insurance payments can be a real burden, especially when cash flow is tight. 

Whether you’re just getting started or looking to expand your coverage, Bitty’s revenue-based financing can help you fund your insurance premiums without draining your resources.

With Bitty on your side, you can easily protect what you’ve built—and on terms that fit your business. 

Contact us today to explore flexible financing for your insurance needs.