Business insurance is a collection of insurance policies designed to protect a business from financial losses caused by property damage, lawsuits, employee injuries, cyber incidents, and operational disruptions. For small businesses, the goal of business insurance is to reduce financial risk by transferring certain financial exposures to an insurer, while supporting long-term stability and growth. Coverage types vary based on a company’s industry, size, risk exposure, legal requirements, and lender expectations, and are often required to secure financing or commercial leases.

Why business insurance matters for small businesses.

For small business owners, a single unexpected event, such as a customer injury, lawsuit, data breach, or natural disaster, can create financial losses large enough to disrupt business operations or even force closure. Business insurance aims to help absorb these risks by covering costs like legal defense, medical expenses, property repairs, and lost income.

Business insurance is also commonly required by:

  • Commercial landlords
  • State labor laws
  • Lender and loan programs, including SBA loan programs

Understanding which types of insurance apply to your business helps you protect both your assets and your ability to access financing as you grow your business.

Business insurance eligibility and common requirements.

Unlike business loans or credit products, business insurance does not have universal approval requirements. Most small businesses can obtain some form of insurance coverage, even if they are newly established or have limited financial history. However, insurers still evaluate certain business characteristics to determine coverage options, limits, and premium costs.

Insurance eligibility is based on risk assessment, not creditworthiness. Insurers look at how your business operates, what types of losses are most likely, and how severe those losses could be. Understanding these common evaluation factors helps business owners anticipate what information insurers may request, and why coverage terms may differ between businesses.

Common factors insurers consider:

  • How long your business has been operating
  • The type of work you perform, and your industry risk level
  • Whether you have employees, vehicles, or physical locations
  • The value of your business property or equipment
  • Prior insurance claims or loss history
  • Legal or lender-mandated coverage requirements

It’s important to note that these factors do not determine whether you “qualify” for insurance in a pass-or-fail sense. Instead, they influence policy availability, coverage limits, deductible, and pricing.

Requirement Typical Threshold Notes/ Exceptions
Time in business No minimum for basic coverage New businesses may face higher premiums, or lower limits
Revenue Not always required Higher revenue may increase coverage limits or premiums
Credit score Often not required May affect payment options rather than eligibility
Collateral Not applicable Property insurance applies only if assets exist
Banking behavior Not typically evaluated Claims history matters more than cash flow stability

Interpreting eligibility requirements for small business insurance.

For most small business owners, the key takeaway is that insurance is accessible at nearly every stage of business growth. Even early-stage businesses or sole proprietors can usually obtain foundational coverage, such as general liability insurance.

As a business grows, adds employees, purchases assets, or applies for financing, insurance requirements often expand. In those cases, insurers may request additional documentation or impose minimum coverage limits to align with legal or lender expectations.

This is why business insurance is often best evaluated in parallel with business planning and financing decisions, rather than as a standalone purchase.

How small business insurance works.

Small business insurance works by transferring specific financial risks from a business to an insurance company, in exchange for regular premium payments. Rather than preventing losses, insurance helps cover certain costs when covered events—such as accidents, property damage, or lawsuits—occur. Understanding how to select, evaluate, and maintain coverage helps business owners choose insurance coverage that aligns with their actual risk exposure.

Step 1: Identify your business’s primary risks.

Start by evaluating how your business operates, including whether you serve customers in person, employ workers, own physical assets, use vehicles, or store customer data. These operational details help you make an informed decision about what kind of policy coverage you may need.

Type of risk Examples of risk exposure
Physical risk Customer injury, property damage, disaster, fire, theft
Operational risk Lawsuits, professional error, supply disruption
Employee risk Workplace injury, illness, wage claims
Digital risk Data breaches, cyber attacks, ransomware
Vehicle risk Accidents involving company or non-owned vehicles

Step 2: Match risks to insurance coverage types.

Each major risk category aligns with specific insurance types, such as liability insurance for third-party claims, or property insurance for physical assets. The goal is to connect each meaningful risk to your business, with a corresponding form of coverage.

Step 3: Review legal and contractual requirements.

You’ll need to confirm whether state laws, commercial leases, vendor contracts, or lenders require specific insurance coverage or minimum limits. Certain coverages, such as workers’ compensation, may be mandatory depending on your business structure and location.

Step 4: Determine coverage limits and deductibles.

You’ll want to understand what coverage limits and deductibles will work for your business based on the potential financial impact of a loss, and how much risk your business can absorb before insurance applies. Higher limits offer more protection, while deductibles influence premium costs.

To estimate the impact of potential losses, consider:

  • Cost of replacing damaged property or equipment
  • Potential legal defense and settlement costs
  • Lost revenue during business interruptions
  • Medical and compensation expenses for injured employers

Expert insight: How to think about coverage limits.

“When choosing coverage limits, small business owners should focus on real-world exposure rather than abstract numbers. For property and equipment, that means thinking about what it would actually cost to repair or replace what you own, not what you paid for it years ago. Liability limits are often shaped by how the business operates, including the services offered, the types of customers involved, and how often the public is part of day-to-day operations.

Many owners aim to balance meaningful protection with affordability, using deductibles to manage premiums while understanding the tradeoff if a claim occurs. It’s also important to revisit limits as the business grows, since adding locations, equipment, or revenue can quickly change what “enough coverage” looks like.”
Scott Harris Scott Harris, AVP of Product Development, The Hartford

Step 5: Compare policies and insurers.

Evaluate insurance policies by reviewing what is covered, what is excluded, and how claims are handled. Comparing multiple insurers helps clarify differences in coverage scope, policy terms, and support.

Step 6: Maintain coverage as your business evolves.

As your business grows, hires employees, purchases assets, or expands operations, your insurance needs may change. Reviewing coverage periodically helps ensure policies remain aligned with current risks and requirements.

Expert insight: When to revisit your insurance coverage.

“Insurance coverage often needs a second look when a business changes in size, scope, or daily operations. Growth milestones such as increasing sales, hiring employees, or expanding customer activity, can introduce exposures that didn’t exist before.

Operational shifts can have a similar impact. Moving to a new location, purchasing major equipment, launching new services, adopting new technology, or serving a different type of customer can all alter a business’s risk profile.

External factors matter as well. Entering new contracts, leasing commercial space, or working with third-party vendors may create additional coverage requirements or expectations. These kinds of milestones typically signal that a business has evolved, making it a natural time to review whether existing insurance still aligns with current operations. ”
Scott Harris Scott Harris, AVP of Product Development, The Hartford

Types of small business insurance.

Small business insurance is not a single policy, but a group of coverage types designed to address different categories of risk. Most businesses use a combination of policies based on how they operate, what assets they own, and which legal or lender requirements apply.

The table below compares the most common types of small business insurance by purpose and use case.

Type of risk Examples of risk exposure
Physical risk Customer injury, property damage, disaster, fire, theft
Operational risk Lawsuits, professional error, supply disruption
Employee risk Workplace injury, illness, wage claims
Digital risk Data breaches, cyber attacks, ransomware
Vehicle risk Accidents involving company or non-owned vehicles

General Liability Insurance

General liability insurance covers third-party claims involving bodily injury, property damage, and related legal expenses. It is often considered foundational coverage for small businesses.

Common examples include:

  • A customer slipping and getting injured at your business location
  • Accidental damage to a client’s property
  • Legal defense costs related to covered claims

This coverage is frequently required by landlords, vendors, and clients.

Professional Liability Insurance

Professional liability insurance, also known as errors and omissions (E&O) insurance, covers claims related to professional mistakes, negligence, or failure to perform services as expected.

Often relevant for:

  • Consultants and advisors
  • Accountants and bookkeeping professionals
  • IT, marketing, and design professionals

This insurance focuses on service-related risk rather than physical injury or property damage.

Commercial Property Insurance

Commercial property insurance protects physical assets owned or used by a business, including buildings, equipment, inventory, and furnishings. Also known as hazard insurance, coverage may apply to:

  • Fire or smoke damage
  • Theft or vandalism
  • Certain weather-related events

This type of insurance is commonly required for businesses that own property, or use insured assets as loan collateral. For example, SBA loan programs frequently have a hazard insurance requirement on property used as collateral for SBA loans.

Business Interruption Insurance

Business interruption insurance helps replace lost income when a business is temporarily unable to operate due to a covered event.

May help cover:

  • Lost revenue
  • Fixed operating expenses
  • Temporary relocation costs

Coverage typically applies only when the interruption is caused by an event covered under a related property policy.

Cyber Liability Insurance

Cyber liability insurance addresses financial losses related to cyber attacks, data breaches, and other digital security incidents.

Coverage may include:

  • Data recovery and system repair
  • Customer notification and credit monitoring
  • Legal and regulatory expenses

This coverage is increasingly relevant for businesses that store customer data or process electronic payments.

Commercial Auto Insurance

Commercial auto insurance covers vehicles owned, leased, or used for business purposes.

It may apply to:

  • Company-owned vehicles
  • Hired or non-owned vehicles used for work
  • Accidents occurring during business-related travel

Personal auto policies typically do not cover business use.

Workers’ Compensation Insurance

Workers’ compensation insurance provides medical benefits and wage replacement for employees injured or made ill due to work-related activities.

Key characteristics:

  • Required by law in most states once a business has employees
  • Covers medical costs and partial lost wages
  • Helps protect businesses from employee injury lawsuits

Requirements vary by state and business structure.

How to decide which types of business insurance you need.

  • If your business interacts with customers, vendors, or the public in person, then general liability insurance is commonly used to address third-party injury and property damage risks.
  • If your business provides professional services, advice, or deliverables, then professional liability insurance is often relevant to help manage claims related to errors or negligence.
  • If your business owns or uses physical assets such as equipment, inventory, or office space, then commercial property insurance may help protect against damage or loss.
  • If your business depends on continuous operations to generate income, then business interruption insurance can help address lost revenue caused by covered disruptions.
  • If your business stores customer data, processes electronic payments, or operates online systems, then cyber liability insurance may help manage financial risks tied to data breaches or cyber incidents.
  • If your business uses vehicles for work purposes, whether owned or non-owned, then commercial auto insurance is typically required to cover business-related driving.
  • If your business has employees, then workers’ compensation insurance is often legally required to cover work-related injuries or illnesses.
“One practical option many small businesses consider is combining core protections into a single policy through a Business Owner’s Policy, or BOP. A BOP typically brings together property and general liability coverage together in one place, which can simplify things for businesses that don’t want to manage multiple standalone policies. These policies are designed to work across a wide range of business types, with built-in coverage and optional add-ons that allow flexibility as operations, size, or risk exposure change. As a business grows, additional protections such as professional liability, cyber coverage, or industry-specific endorsements, can often be added to the BOP over time. This makes it easier to adapt coverage without starting from scratch.”
Scott Harris Scott Harris, AVP of Product Development, The Hartford

Next Steps: Exploring business insurance coverage options.

Once you understand the types of business insurance that may apply to your business, the next step is exploring coverage options and pricing from a trusted insurance provider. Comparing quotes can help you better understand coverage limits, policy structures, bundling options, and costs based on your business’s specific risk profile.

The Hartford is a well-established provider of small business insurance, offering a wide range of coverage options including general liability, professional liability, commercial property, workers’ compensation, and cyber liability insurance. Small business owners can explore coverage options and request quotes to better understand what policies may be available for their business.

Request a business insurance quote from The Hartford to see your coverage options.

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"This content may include information sourced from Lendio or other third parties. The Hartford does not control, endorse, or guarantee the accuracy or completeness of third‑party information, including SBA loan requirements, hazard‑insurance obligations, or lender criteria, which are subject to change. The material is provided for educational purposes only and does not constitute legal, lending, regulatory, or tax advice. Businesses should consult their own advisors or the SBA for guidance specific to their circumstances.

This message contains promotional information and is not a contract, offer, or guarantee of coverage. Insurance coverage is provided only through an issued policy, subject to underwriting approval and applicable policy terms."