Being an entrepreneur and starting or owning your own business is incredibly rewarding, but it comes with its own challenges. According to Next Insurance’s 2025 survey from 500 business owners, 65% of small business owners struggle to understand their coverage options. Learning the basics and separating fact from fiction can help you feel confident and protected. Let’s break down some common myths.
Myth 1: “I don’t need general liability insurance because I work from home.”
General liability insurance primarily covers bodily injury to people outside of your business and physical damage to their property. General liability insurance is a necessity for most businesses.
Even if you work out of your home, you likely still need general liability because of the sub-limits it provides, such as Products/Completed Operations or Personal and Advertising Injury. Sub-limits are maximum amounts for certain types of losses within the policy’s total limit. Some examples include:
- Products/Completed Operations: Helps protect you if your product or completed work causes harm or damage.
- Personal and Advertising Injury: Covers issues related to advertising, such as libel, slander, or copyright infringement.
Working from home doesn’t eliminate liability risks; it just changes the type of exposure you face.
Myth 2: “I don’t need workers’ compensation insurance because the people who work with me are classified as 1099/independent contractors.”
While every state’s laws vary, and true independent contractors often don’t require workers’ compensation coverage, that doesn’t mean your business is fully protected. There are plenty of exceptions you don’t want to get caught on.
Misclassification is a common one. If someone is truly a 1099 contractor, they should have their own general liability to prove it and list you as an additional insured on their policy. Doing this helps ensure their policy defends you if you’re named in a lawsuit, but they caused bodily harm or property damage. If you’re labeling someone as an independent contractor when they should legally be a W2 employee, this can lead to costly fines, penalties, and legal issues. Some states also impose special rules for independent contractors in higher-risk industries like construction.
To determine whether someone should be on your workers’ compensation policy, ask these questions:
- Do they work for only me?
- Do I tell them where and how to work?
- Do they have their own general liability insurance?
If the answer is “Yes” to the first two questions and “No” to the third, you may want to purchase workers’ compensation or add them to your existing policy.
Workers’ comp. can also help protect your business reputation and image, and in some cases, it can provide lost wage benefits to injured workers, regardless of their classification.
Myth 3: “I don’t need cyber liability insurance because a third-party vendor houses my credit card/payment information.”
Cyber liability covers more than just payment information. If you’re even using or connecting to a computer, network, or the internet, your business should consider cyber liability insurance.
Hackers are becoming increasingly sophisticated. They attack to gain customer PII (personally identifiable information) and other private, proprietary information with the use of malware, phishing, and ransomware. Even if a vendor manages your payment information, your business may still be held responsible for breaches or cyber incidents affecting your systems, communications, or stored data.
Myth 4: “I don’t need commercial auto liability insurance because we don’t have any company vehicles.”
Even if you don’t have company vehicles, your business can still be brought into a suit involving auto vehicles. If you cause bodily injury or property damage while in a rental car, borrowed car, or if your employee is on business time or running a business errand in his or her vehicle, your business could be in jeopardy.
Your employee’s personal auto policy may not cover work-related incidents. Consider examples such as an employee driving to meet a client, traveling to a new brick-and-mortar location, picking up a shipment, or delivering a product. These scenarios, and many others, leave your business exposed.
Myth 5: “I don’t need professional liability insurance because I already have general liability.”
Many businesses may need both professional and general liability insurance to fully cover all types of risks associated with owning and operating a small business. Professional liability, also known as errors and omissions insurance (E&O), protects against:
- Professional mistakes
- Faulty advice
- Missed deadlines
- Negligence claims
If your work involves advising clients, making recommendations, providing expertise, or delivering specialized services, E&O insurance can be critical. Many clients even require it in contracts.
Insurance can feel overwhelming, but understanding your options empowers you to make informed decisions that protect everything you’ve worked hard to build. By learning what each policy truly offers, you can safeguard your business, maintain compliance, and operate with confidence.
Remember, you don’t have to navigate this alone! Our dedicated PBU team is here to help take the guesswork off your plate so you can get back to business. Reach out for a quick small business insurance quote!