Business Insurance: What You Need and What to Watch Out For

Business insurance is one of the less exciting parts of starting a trade business — but getting it wrong is expensive. The right coverage protects your personal and business assets from unexpected costs that can come out of nowhere: a customer injury on a job site, a stolen truck, a lawsuit over faulty workmanship. This guide covers the types of small business insurance you'll likely need, what each one actually does, and a few gaps worth knowing about before you sign a policy contract.

Most businesses in the trades need at least general liability insurance, commercial auto insurance, and workers compensation insurance — but the right coverage depends on your trade, your business size, and how your business operates. If you're unsure where to start, a licensed agent or insurance agent who works with contractors can help you get a business insurance quote and compare coverage options across insurance companies. The SBA's business insurance guide is also a useful starting point.

General Liability Insurance

Every trade business needs Commercial General Liability (CGL) insurance, also commonly called general liability. It provides essential protection against the core risks you'll run into: third-party bodily injury, third-party property damage, and the resulting medical expenses if someone gets hurt or something gets damaged on the job. It also helps cover legal expenses — including defending lawsuits — if a liability claim is filed against you.

Many states require contractors to carry general liability insurance to obtain a contractor's license. Requirements vary by state and trade — check your state licensing board to confirm what applies to you. For a full overview of licensing requirements by trade, see the Business Licensing & Registration section of this guide.

CGL does not cover everything. Work-related injuries to your own employees and damage to your own business assets are not included. Common exclusions also include liquor liability, commercial auto claims, and pollution. Review your policy contract carefully so you know exactly what's covered before a covered incident occurs.

Business Owner's Policy

If you're buying general liability and commercial property insurance separately, it's worth looking at a Business Owner's Policy (BOP) instead. A BOP bundles both into a single policy — typically at a lower combined cost — and can also include tools and equipment coverage and legal costs if you're sued. For small business owners, a BOP is often the most cost-efficient starting point for business insurance coverage.

Most insurers offer BOPs to small businesses, generally those under 100 employees, though eligibility requirements vary by provider. According to industry estimates, average BOP costs typically start around $84–$99/month depending on coverage and business size — (editor: verify with a current cited source before publishing) — but your actual premium will depend on your trade, location, claims history, and coverage limits.

As your business grows, your BOP can often be extended with additional coverage — cyber insurance, professional liability, and more — so it scales with your business needs rather than requiring a complete policy overhaul.

Commercial Property Insurance

Commercial property insurance covers your physical business assets — your building, equipment, computers, signage, and other company property — against damage from events like fires, storms, burst pipes, and theft. Coverage applies to what's on your commercial property or at your business location. Without it, replacing damaged or destroyed assets comes entirely out of pocket, which can threaten normal operations.

Equipment Failure Insurance

If you have a physical office with equipment that could be damaged by electrical issues like a power surge, equipment failure insurance covers that. Much of this coverage may already be included in your commercial property policy depending on your insurer — worth checking before buying a separate policy.

Tool Insurance

Tools are one of the most common insurance gaps for trade businesses. Standard homeowners insurance, commercial property insurance, and general liability policies typically don't cover tools that are stolen from a vehicle or damaged on a job site — tools in transit fall into a grey area between business insurance policies.

You have a few options:

Add tool coverage to your commercial property policy. Some insurers allow this.

Include it in a BOP. Many Business Owner's Policies will cover tools and equipment.

Buy standalone tool insurance. Van tool insurance specifically covers your tools both at the job site and in transit, including theft from a vehicle and vandalism on site.

When setting up tool coverage, you'll typically choose between:

• Unscheduled coverage: For smaller tools valued under $1,000, usually grouped together rather than listed individually.
• Scheduled coverage: For higher-value items of $1,000 or more, listed individually. Includes larger equipment like generators.

Median premiums for contractor's tools and equipment insurance are commonly cited around $14/month — (editor: verify with a current cited source) — but costs vary by the total value of your tools and your location. If a single piece of equipment is worth more than $10,000, you'll likely need Inland Marine coverage instead.

Keeping an accurate record of what tools and equipment you own — and what they're worth — matters here. FieldPulse's asset and equipment tracking lets you log and track your tools and equipment so you have a clear inventory if you ever need to file a claim or set up scheduled coverage.

Inland Marine Insurance

Inland marine insurance covers tools, materials, and equipment valued over $10,000 that are transported between job sites. Unlike commercial property insurance, which only covers items at a fixed location, inland marine covers your business assets while they're on the move. Costs vary widely based on what you're insuring — (editor: verify cost range with a current cited source).

Business Vehicle Insurance

Personal auto insurance policies typically exclude vehicles used for business, or limit coverage significantly — meaning a covered event during a work trip may not be covered at all. A commercial auto insurance policy covers your business vehicles properly and generally carries higher liability coverage limits than a personal policy. Commercial vehicle insurance can also cover medical expenses and property damage for third parties in the event of an accident. If you run a mixed fleet, you can often structure coverage differently for each vehicle based on how it's used.

Workers' Compensation Insurance

In most states, workers compensation insurance is required once you have employees. It covers medical costs and lost wages if a worker is injured on the job, and protects business owners from financial loss due to employee injuries. Requirements vary by state — check your state's requirements before you hire.

Some workers' comp policies can be extended to cover employment-related claims including wrongful termination. If you have employees, talk to your insurance agent about whether that additional coverage makes sense for your business.

Contractor's Professional Liability Insurance

Professional liability insurance covers claims arising from professional mistakes — errors in your work, design decisions, or mistakes made by subcontractors you hired (engineers, architects, or other vendors). If a client sues you for damages they say resulted from faulty workmanship or professional judgment, this is the coverage that addresses it. It's especially relevant for businesses that provide professional services or take on design-build projects where your judgment is part of what you're selling. Legal fees for defending those claims can add up fast even when you're not at fault.

Cyber Insurance

Most businesses in the trades don't think of themselves as cyber risks — but if you store customer payment information, use scheduling software, or send invoices digitally, you're holding data that can be compromised. Cyber insurance covers financial loss from data breaches, ransomware attacks, and other digital threats. As more of your business operations move online, the same risks that affect larger companies apply to small businesses too. If you're using cloud-based field service software, ask your insurance agent whether cyber coverage belongs in your commercial insurance package.

Insurance isn't exciting — but the gap between what you think is covered and what actually is can cost you the business. Get the basics in place before you need them, and revisit your coverage whenever something significant changes: new vehicles, new employees, new services, new equipment. A conversation with an agent who works with contractors takes an hour and is worth every minute of it.