Business Risks To Insure Against: What Every Small Business Owner Must Know

Your business faces many risks every single day. Risks that could cost tens of thousands of dollars or force you to close permanently.

A customer slips on your floor. An employee gets injured. A fire destroys your equipment. Your business vehicle causes an accident. Any one of these scenarios could financially devastate an uninsured or underinsured business.

Understanding which business risks require or can be mitigated through insurance coverage is essential to protecting everything you've built. This article will help identify the critical risks every small business can insure against and show you how to safeguard your company's future.

Why Identifying Insurable Risks Is Critical for Small Businesses

You may think that you’re prepared for any situation thrown your way, but the risks associated with running a business aren’t solely financial. Taking risks and keeping the mindset of “it won’t happen to me” can affect organizational reputation, employee turnover and morale, and even cause bodily harm.

Having just one uninsured incident can lead to financial crisis and effectually shut your business down. Think twice about what’s a risk worth taking versus what should be insured for your own protection.

The 8 Critical Business Risks To Insure Against

While businesses face countless challenges every day, certain types of business risks pose such severe threats that insurance isn't just optional, it's essential. Here are seven critical risks every small business can protect themselves against:

1. Employee Workplace Injury

Any employee has the potential to get sick or injured while working. The financial and legal risks associated with a workplace injury can be huge, especially if the business is uninsured.

Obtaining workers’ compensation coverage is essential for protecting both your employees and your business. Most states legally require you to have this coverage, but it may vary based on the number of employees you have or the industry you’re in. No matter where your business may be located, this is a risk you don’t want to take.

2. Customer Injury and Third-Party Claims

Anyone who enters your premises or is affected by your business has the potential to file claims and threaten generalliability. This range includes customers, clients, and even visitors.

With such a wide range of possibilities, it is better to be safe rather than sorry when it comes to third-party claims. General liability insurance is one of the most common insurance types businesses choose to elect, in fact, many clients may require it from you before willing to conduct business. You never want to be responsible for injuries, but on the off chance they occur, protecting your business should be your priority.

3. Business Property Loss and Damage

Establishing your own brick and mortar location is a dream of many small business owners. But once you achieve this step in your dream, your physical business becomes one more thing you need to protect. Physical business assets can face numerous threats. Being prepared in case they happen should come right after you get the keys.

*covers sudden and accidental issues like burst pipes, sprinklers, or roof damage - not floods

The effects of property damage can be devastating. Your company’s location also impacts the likelihood of certain property damage claims, making commercial property insurance even more necessary to protect the unexpected and your wallet.

4. Business Interruption and Lost Income

Some things are out of our control. When your business is interrupted for even one day, you can begin to lose major profit and risk your own survival. Without coverage, it may be almost impossible to resume your operations right away and may even cost you everything.

*covers sudden and accidental issues like burst pipes, sprinklers, or roof damage - not floods

Business interruption insurance covers lost income, employee wages, taxes, temporary relocation, and other ongoing expenses while your business is closed for repairs after a covered loss . This helps you get back on your feet and fully operating quicker and with less risk to your overall business. Business interruption insurance is commonly included with a business owner policy, or a bundle of multiple insurance policies like: general liability, commercial property, and business interruption.

5. Auto Accidents During Business Operations

If your work includes company vehicles or requires employees to use their own vehicles, then they face the risk of potential auto accidents. Vehicle use creates significant liability exposure if an accident occurs, and it can also be detrimental to your business operations if one of your vehicles is out of commission.

You may think personal auto insurance can cover your business vehicles, but many personal policies have business use exclusions, creating significant coverage gaps that leave you financially exposed.

The solution: commercial auto insurance. This coverage provides liability, physical damage, medical payments, and uninsured motorists coverage, allowing your business to recover from accidents and resume work faster.

6. Professional Mistakes and Client Claims

If you provide professional services or advice, your business should consider having errors and omissions insurance (E&O Insurance). Consultants, contractors, designers, IT professionals, marketers, accountants, and real estate agents can all benefit from the coverage this policy can provide against alleged claims of negligence, inaccurate advice, misrepresentation, and violations of good faith.

This risk is not covered under general liability insurance and to move forward without E&O coverage could result in substantial uninsured liability if a claim is filed. In fact, if you commonly work with clients, many contracts may include stipulations that require you to have E&O insurance as an extra measure of protection.

7. Employment-Related Lawsuits

The growing threat of discrimination, harassment, and wrongful termination claims can seem intimidating. It is a common risk that almost all business owners fear will come true. Any employee can file claims against your company; even well-managed small businesses can face these types of claims from a disgruntled employee or former employee.

Employment-related claims affect tens of thousands of businesses every year. No matter what your business size or industry is, you face the very real risk of being on the other side of one of these claims. Employment practices liability insurance (EPLI) is designed to mitigate the financial losses associated with employment-related claims.

8. Cyber-Related Crimes

The growing threat of cybercrimes affects all businesses. It is becoming more and more common and can affect you regardless of size or industry type. While having cybersecurity plans and protections in place is beneficial, if even one cyber threat reaches your business, the consequences can be immense.

Don’t risk it all in hope of not being affected. Electing cyber liability insurance can help protect you from the financial losses associated with cybercrimes and help your business get back on its feet faster.

Industry-Specific Risks To Consider

Your industry itself poses its own unique risks. These are just a few industry-specific risks you should keep in mind when running your small business.

• Restaurants, Bars, Events: Liability for serving alcohol to intoxicated persons who could cause harm and dram shop laws in most states.
• Food, Floral, Medical: Equipment failure could destroy perishable inventory.
• Any Business With Customer Data: Potential cyberattacks, data theft, or privacy violations.

Evaluating Which Risks Apply to Your Business

Once you’re ready, ask yourself these key questions to gain a baseline understanding of your business risk.

• Do you have employees? (Workplace injury risk)
• Do customers visit your location? (Liability risk)
• Do you own or lease business property? (Property risk)
• Could you survive 3 months without revenue? (Interruption risk)
• Do you or employees drive for business? (Auto risk)
• Do you provide professional services or advice? (E&O risk)

As your business continues to grow it may face more risk as you are exposed to more customers and may choose to expand your offerings. Continually reviewing your answers to these foundational questions can help you develop a risk profile that clearly reflects your business’s current standings.

Understanding Uninsurable Business Risks

As a business owner there are some risks you just can’t purchase insurance for. In order for certain claims to be insurable they must be definite and measurable; this allows for confirmation of a certain claim to then be paid out or managed. But certain risks are uninsurable due to the high uncertainty surrounding the claim and the ambiguity that prevents verification of it.

It’s important to practice business risk management in order to understand the stakes and risk associated with your business’s location and industry, amongst other concerns.

The Cost of Being Uninsured or Underinsured

If you choose not to elect coverages that help protect your business, you may face real and dire consequences. These can include:

• Out-of-pocket costs that can bankrupt businesses
• Legal fees even when you're not at fault
• Loss of business income during disputes or recovery
• Personal asset exposure for sole proprietors and partnerships
• Difficulty obtaining coverage after a claim

It may seem as if you’re saving money by skipping over so-called “optional” policies, but the fact of the matters is that what you may be saving in premiums now may cost you your entire business later.

Building Your Business Insurance Strategy

Consider these practical steps for obtaining proper coverage:

1. Identify which risks apply to your business (use the assessment above)
2. Prioritize legally required coverage first (like workers' comp or commercial auto if applicable)
3. Add any industry-specific coverage (E&O, EPLI, liquor liability, or spoilage)
4. Determine which coverage limits work for you based on your assets and exposure
5. Review and update coverage as your business changes
6. Consider bundled policies (like a BOP) for cost savings and simplicity

Following these steps can help you rest assured that your business is safe against any potential harm.

Common Mistakes Made When Insuring Against Business Risks

When purchasing coverage for your business, you may try to prioritize money savings now over long-term protection. Avoid making these common errors to maximize your protection.

• Assuming you're too small to face these risks
• Believing personal insurance covers business risks
• Skipping coverage that isn't legally required
• Underestimating property values and potential losses
• Not understanding what's excluded from policies
• Choosing the cheapest policy without comparing coverage
• Failing to update coverage as the business grows or changes
• Not documenting assets properly for potential claims
• Thinking "it won't happen to me"

Underestimating the possibility of risks can be the most detrimental decision you could make. Always err on the side of caution, so that you’re never left to fend for yourself.

Start Protecting Your Business Today

You've learned the essential types of business insurance — from general liability that covers everyday accidents to workers' compensation that protects your team. Now it’s time to get started.

The good news? Getting protected is easier than you think. Many businesses start with a business owner's policy that bundles general liability and property coverage at a lower cost than buying separately. By acting now rather than after an incident occurs, you're securing your business's future and protecting everything you've worked to build.