What small businesses need to know about insurance

Now, when it comes to insurance, the options can feel endless. But there are a few key areas I encourage every small business owner to consider. 

General liability insurance is the baseline – it covers things like property damage or bodily injury caused by your business operations. It’s the policy that kicks in if someone sues you because they were hurt on your premises or their property was damaged while you were working.

Then there’s commercial property insurance. This covers your equipment, inventory, and physical location from things like fire, theft, and weather damage. And if something major happens that forces you to shut down for a while, business interruption insurance – which can be bundled with commercial property – can help you recover lost income and keep paying the bills while you get back on your feet.

If you offer services or advice – say you’re a consultant, designer, or accountant—professional liability insurance (sometimes called errors and omissions insurance) is a must. It covers claims if you made a mistake or failed to deliver on a professional obligation. Even if you’re confident you did nothing wrong, the legal fees alone can be crushing.

For businesses with employees, workers’ compensation insurance is legally required in most states. It covers medical costs and lost wages if an employee gets hurt on the job. This is important not just for compliance, but for showing your team that you’ve got their backs.

And don’t overlook cyber liability insurance. These days, even small businesses are targets for hackers. A data breach can cost thousands – or more – in damages, fines, and lost trust. Cyber insurance helps cover those costs and gives you access to professionals who can help contain the damage.

What small businesses need to know about bonding

Now let’s switch gears to bonding. If your work involves contracts, particularly with government agencies or large companies, chances are you’ll encounter bonding requirements. 

There are several types of bonds, but they all boil down to one thing: assurance. A bond tells your client that if you fail to meet your end of the bargain – whether that’s completing a project, complying with regulations, or paying subcontractors – there’s a third party (the surety company) ready to step in and make things right.

License and permit bonds are common in industries like construction, plumbing, and electrical work. They’re often required by cities or states before you can legally operate. 

Then there are contract bonds, like performance bonds and payment bonds, which guarantee that you’ll finish a job as agreed and pay your suppliers and subs. These are especially common in public works projects. 

There’s also something called a fidelity bond, which protects against employee theft. If your business handles sensitive data, money, or valuable goods, this might be worth looking into.

So how do you make sure you’re properly insured and bonded? 

Start by talking to professionals. A good insurance broker can walk you through the different policies available and help tailor coverage to your business’s specific needs. Don’t just grab the cheapest policy online. Cheaper often means fewer protections and more exclusions—details that come back to bite you when it’s time to file a claim.

You should also revisit your policies at least once a year. Your business isn’t static – maybe you’ve grown, hired more employees, moved into a new location, or expanded your services. Your coverage should grow with you. And if you’re signing new contracts that require bonding, make sure your bonding capacity is up to date.

One mistake I see too often is assuming that personal insurance will cover business activities. It usually doesn’t. Your homeowner’s policy won’t protect business equipment in your garage. Your personal auto policy might deny a claim if you’re using your car for work. The gaps can be serious.

I also advise documenting everything. Keep digital copies of your insurance policies and bond agreements, as well as proof of payment and renewal. If a dispute or claim arises, having organized records can make all the difference in how quickly and smoothly you resolve the issue.

The bottom line on insurance and bonding

At the end of the day, insurance and bonding aren’t about being pessimistic. They’re about being smart. They allow you to take on big clients, land better projects, and sleep at night knowing that one bad break won’t undo everything you’ve worked for. And they send a message to the world: you’re a serious business owner who plans to be around for the long haul.

If you’re unsure whether your current coverage is adequate, or if you’re trying to make sense of bonding requirements in a new contract, talk to a business attorney. The upfront investment in legal and insurance advice can save you a fortune – and maybe even save your business – in the long run.

You’ve worked hard to build something great. Make sure it’s protected.