Small business insurance differs from personal insurance and large commercial insurance in several ways. Here are key distinctions that make small business insurance unique:

What Is Small Business Insurance?

Small business insurance protects your business assets, property and income. It includes protection against property damage, injuries, lawsuits, workers’ compensation claims or other losses you may face while operating your business. 

Insurance companies offer different insurance coverages depending on the business’s demands. According to the Insurance Information Institute (Triple-I), the most common policy for small businesses is the “Business Owners Policy” or BOP, which combines the major property and liability coverages into one package. 

Commercial Insurance Vs. Small Business Insurance

Like small business insurance, commercial insurance protects businesses from losses arising from unexpected events, like natural disasters, accidents and lawsuits. Examples of coverages include property damage, employee-related risks and legal liability. The coverage that companies choose typically depends on the potential risks, which vary from industry to industry. Even within a particular sector, businesses select different insurance coverages depending on the nature of their operations.

Small Business Insurance Vs. Commercial Insurance

The primary difference between small business and commercial insurance is the business size. While small business insurance focuses on small organizations, commercial insurance may apply to medium and large businesses as well. In other words, all small business insurance is commercial insurance but not all commercial insurance is small business insurance. 

Insurance coverage may become complex as the business grows, and the level of coverage is generally broader for larger organizations. As a business owner, it’s recommended that you evaluate your insurance needs, taking into account the size of your company.

How does a company determine its size? Consider the following factors when making this assessment.

Number Of Employees

The number of people employed is essential when determining a company’s size, at least for insurance purposes. Employees may include full- and part-time workers or seasonal employees but generally excludes independent contractors. The number of employees required for a business to qualify as small or large may depend on the agency and industry.

Total Sales

Large businesses typically generate more sales than their smaller counterparts. This reality could be based on several factors, such as the price of specific goods, demand for products and number of customers. Bigger companies usually have more risks than smaller businesses and require more extensive insurance coverage, but the circumstances may change depending on the type of business.


A business’s net profit is an integral factor when determining its size. Small businesses generally have small profits, while large companies make substantial returns. Considering that insurance premiums can affect a business’s profit margin, selecting coverage that matches your spending abilities is crucial.

Market Share

Market share is the portion of a market that a particular company controls. It’s expressed as a percentage of the total sales or revenue in a market that the business is responsible for. For example, if 50,000 units of product X are sold in a particular year in a specific industry, a company that sold 5,000 units would have a 10% share in that market.

Large businesses usually have higher market shares. Even so, a relatively lower share does not automatically make your business small. The deciding factor is determining how much your business makes compared to the major industry players.

Market Capitalization

Market capitalization is the value of a business that is traded on the stock market. It is calculated by multiplying the total share amount by the present share price. Market capitalization directly reflects how well the business is doing—a standard measure of its equity value to investors. 

Capital Employed

Capital or funds employed is the total amount of capital the business uses to acquire profit. It’s typical for large companies to have more capital employed since small businesses generally require less capital to run operations. As the business grows, its capital may expand to meet the demands. This usually translates into higher risks, hence the need for more extensive insurance coverage.

How Business Size Impacts Insurance Needs

Triple-I provides some helpful insight by organizing businesses into the following categories.

Home-Based Business

A small shop run by a sole trader and their family may be considered a home-based business. These entities usually have relatively low revenue but still need insurance against risks. However, the level of coverage may differ from other larger organizations. Home-based businesses are essentially small businesses but treated separately because of how they are managed.

Home-based businesses operating as sole proprietors have a higher risk of losing their personal property to liabilities. It’s vital to consult an insurance professional to determine which coverage best suits your operations. For example, in addition to homeowners insurance, you may be advised to get other business-related coverages to protect your assets. 

Small Business

Small businesses have different definitions, but all depend on factors like the number of employees, profit generated and capital employed. Some insurers may consider companies with less than 50 employees small, while others may set the number at 100. Triple-I states that BOPs are usually available to businesses with less than 100 employees and an annual revenue of about $5 million or less. Since BOPs are most common among small businesses, using this benchmark to determine what qualifies as a small business makes sense.

Medium-Sized Business

According to Triple-I, businesses with 100 to 1,000 employees and an annual revenue of $10 million to $1 billion may seek insurance as medium-sized businesses. Given the size of the company and its assets, insurers may develop particular policies that combine property and liability coverages to cater to those needs. Small businesses may require less extensive coverage on machinery and equipment as medium-sized companies, and transfer their resources to other areas as a result.

Large Business

Large businesses may have more than 1,000 employees, but the revenue requirements may depend on the type of business. Organizations often become more complex as they grow, and so do their insurance needs. Such companies may customize insurance coverages to meet their demands.

Unlike small businesses, most large companies employ professionals to evaluate potential risks and recommend preventive measures. These professionals also implement processes to reduce their risks as much as possible. Even so, small businesses may leverage reliable insurance companies to assess their risks and propose coverage.

Understanding these differences helps small business owners make informed decisions when selecting insurance coverage tailored to their specific needs and circumstances. It’s advisable for small business owners to work with insurance professionals who specialize in small business insurance to ensure optimal coverage.

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