Business Insurance 101: The Six Policies and the Order to Buy Them
Six policies cover almost everything a small business needs. The trouble is what falls between them — so here is what each does, and what none of them do.
- General liability is the contract requirement; workers’ comp is the legal one
- Professional liability covers advice and is explicitly excluded from general liability
- Your own property is never covered by liability policies — that is property or inland marine
- A business owner’s policy bundles liability and property for eligible small businesses
- Cyber, commercial auto and employment practices are separate and increasingly necessary
- Buy in the order your exposures actually bite, not in the order of premium
The six policies
General liability covers third-party bodily injury, property damage and advertising injury. It is what every contract asks for, at $1 million per occurrence and $2 million aggregate, and its main value is funding your defense.
Workers’ compensation covers employee injury and is legally mandated with employees in nearly every state. It also gives you exclusive remedy protection, which caps your exposure to a statutory benefit schedule.
Commercial property covers your building, contents and equipment at your location. Business interruption alongside it replaces income while you cannot trade.
Professional liability, or E&O, covers financial harm caused by your advice or services. General liability explicitly excludes professional services, so anyone who advises needs it separately.
Commercial auto covers vehicles used for business. Personal auto policies exclude business use.
Cyber liability covers breaches, ransomware and funds transfer fraud, none of which general liability touches because data is not tangible property.
What order to buy in
Buy against your actual exposures rather than a checklist. With employees, workers’ compensation is usually the first thing to settle — though whether it is mandatory, and above how many employees, is set state by state, and Texas is the notable exception for most private employers. Where contracts or job-site access are in play, general liability tends to come first. Where advice is sold for money, professional liability is the most likely claim.
A business owner’s policy is the efficient structure for most small businesses with a location — it bundles general liability and property, usually with business interruption, below the cost of buying them separately. Eligibility is limited by class, revenue and square footage.
The gaps between them
These are the losses that fall between policies, and they cause most of the surprises.
Your own tools and equipment away from your premises: not general liability, not usually property. That is inland marine.
Customer property in your possession: excluded from general liability by the care, custody and control exclusion. That is bailee coverage.
Employee lawsuits over termination or discrimination: not general liability, not comp. That is employment practices liability.
Money you were tricked into wiring: usually a small sublimit on cyber or crime. Ask what yours is.
Your own defective work: excluded everywhere. Insurance pays for the damage your work caused, never for redoing the work.
How to buy well
Compare declarations pages, not premiums. Two quotes at the same limit can differ entirely on exclusions, sublimits and whether defense costs erode the limit.
Ask for the endorsement schedule by form number, and compare it against your expiring policy at every renewal. Exclusions get added quietly and an identical premium with a new exclusion is a price increase you cannot see.
Then read your contracts and match the requirements exactly: limits, additional insured status for ongoing and completed operations, waiver of subrogation, and primary and non-contributory wording.