90% of business owners aren’t sure if their business is adequately insured—and with all of the information about small business insurance floating around out there, we aren’t surprised. Small business insurance is one of a business owner’s most significant investments. However, how are you supposed to know what insurance a small business needs if you aren’t sure what’s fact and what’s fiction?
We’re sure you’ve heard some of these common refrains. “Insurance is too expensive,” “My business is too small to need insurance,” “I have an LLC/contracts, so I don’t need insurance, too,” and “I work from home - I don’t need insurance!”
Today, we’ll break down these common small business insurance myths for you and tell you what insurance small businesses should look for so you can be well-informed and prepared for your small business insurance search.
Small business insurance isn’t too expensive for any small business owner. However, if you’re part of the 29% of small business owners without business insurance, an incident is the costly reality you may be facing. Small business insurance is an investment in protecting your business against the costs of legal action, loss, or time off of work that you didn’t plan for.
Instead of looking at small business insurance as another cost, look at insurance as an asset. Business insurance isn’t an expense to cut out of your monthly budget in an attempt to save money; it’s a way to set your business up for long-term success.
If you think insurance isn’t worth investing in because of your business's size, think again. No company is too small for a costly incident. Incidents aren’t just public lawsuits; there’s a broad spectrum of ways in which you may not be protecting your business unless you have insurance. These can include expenses associated with unforeseen time off, reputation management, and damaged property.
Imagine you’re a business development consultant, and most of your money comes from offering advice to the CEOs of startups. One of your clients decided your advice was intentionally misleading and was the sole cause of their business’s failure. They sue you, and you incur massive financial losses in legal fees and reputational damage due to the incident. You need time from work to meet with lawyers and go through legal proceedings. None of these costs will be covered if you don’t have insurance.
No matter where you conduct business, you still provide people with your professional services. You may also work remotely or have clients in your home, situations which pose their own risks. Home-based businesses do need insurance.
However, they often have different insurance needs than their counterparts that operate out of a separate physical location. With that in mind, here’s what we recommend - and why - for home-based businesses.
[Pro Tip: LLCs won’t protect small business owners like insurance does. While having an LLC will make it harder to seize your personal assets, it may not be impossible. We strongly recommend consulting with a CPA regarding what would be protected by your business structure in the case of an incident.]
Cyber insurance is necessary for anyone working remotely for their own home-based business. Potential risks home-based business owners may face include:
Cyber insurance can protect you directly (first-party coverage) or protect you against third-party claims(third-party coverage). First-party cyber insurance covers lost income, cyber extortion, crisis management, and fees related to the incident the FTC may impose.
Third-party cyber insurance covers payments to consumers whose data was stolen from your network, claims and settlements, defamation-related losses, and litigation costs. Small business owners who store sensitive data should have both types of coverage in a cyber policy.
Other home-based businesses involve a person coming to your house for a service. Common examples are people who provide physical services like hairstyling or yoga therapy in their homes.
In these cases, you’re responsible for the services you provide and the safety of the people on your property, and this is where general liability can come into play.
Errors and omissions insurance, or professional liability insurance, protects you from the financial costs associated with accusations of negligence or intentional harm in providing your service.
E&O insurance is helpful to people providing their expertise as a service, whether they’re professional consultants or highly skilled technicians. If you run a home-based business, you’re more than likely providing your expertise in some way, whether you’re a consultant or offering a physical service.
Need help determining which insurance policies your small business needs? Discover what your small business needs with our Insurance Guru tool!
While contracts can provide your business with some protections and disclaimers, they do not provide the same protection a small business insurance policy does. A standard contract agreement that can protect a small business from costly incidents includes the agreement to try to settle disputes out of court. However, contracts do not give a small business owner the same coverage insurance does.
Take CrowdStrike, the cybersecurity company whose faulty update caused a massive outage in global technology in 2024. While they aren’t a small business, they give us a perfect example of how contracts don’t always protect businesses.
CrowdStrike’s contracts have terms and conditions in place to ensure that all they need to do if a software update fails is issue a refund to affected customers. Their outage was global, so this alone is already costly for the company. However, this hasn’t stopped companies like Delta Airlines from suing CrowdStrike for gross negligence.
Only insurance can protect your small business from unforeseen expenses and risk exposure. Our insurance experts at CoverHound are here to help you find the right type of insurance for your small business needs.
At CoverHound, we know that no business is too small to experience an incident. If you can’t afford insurance to protect your business proactively, you can’t afford the cost of an incident.
Whether you’re home-based or not, you need more than a contract or business structure to rely on for protection. With CoverHound, you can get long-term security and peace of mind by using our user-friendly online insurance platform to discover what insurance your small business needs.
CoverHound provides small business owners with 50+ carrier options so you can easily compare insurance options. Our experts are here to guide you through the insurance process and answer your questions. Get your free customized insurance quote in less than five minutes when you take our online quiz today.
Insurance shopping simplified
Insurance shopping simplified
