How to choose the right type of ecommerce business insurance

Running a business comes with some risk, and while an ecommerce business may not be subject to the same ones that come with a physical storefront, it’s still necessary to be prepared with business insurance. The kind of insurance you need for your ecommerce business will vary depending on the industry you operate in and the liabilities it may be exposed to.

A survey by NEXT Insurance found that 53% of small business owners said their greatest barrier to getting insurance is simply knowing what kind of insurance their business needs.Here, we’ll explore why ecommerce business insurance is necessary, including how business insurance can protect you and how to choose the right kind for your growing company.

Insurance exists to protect you and your business in the event of a worst-case scenario. While an ecommerce business will have different risks than a brick-and-mortar store or a company with offices, it isn’t free of risks entirely. Rather than protection against things like damage to your storefront or customer or employee injuries, ecommerce businesses need to be prepared for anything that can interrupt business operations. Here are a few risks that your ecommerce business can protect itself from with the right insurance:

• Shipping mishaps
• Damaged or stolen inventory
• Product recalls
• Data breaches or cyberattacks
• Supply chain issues that cause interruptions
• Lawsuits due to breach of contract with clients or vendors

As you can see, there are several ways ecommerce storefronts are exposed to liabilities, so business insurance is a must-have. The potential financial implications of not having insurance for your ecommerce business can far outweigh the cost of paying for insurance.

Legally speaking, business insurance requirements vary by state and business type. For example, almost every state in the U.S. requires that businesses hold a certain amount of insurance, and some have more specific requirements around the types of insurance that a business with employees needs to have. For example  there are five states — California, Hawaii, New Jersey, New York, and Rhode Island — that require companies to provide employees receive short-term disability coverage for their employees, regardless of the type of company. Puerto Rico also mandates short-term disability coverage for employees.

Additionally, commercial insurance may be necessary at a certain stage of your business if you begin working with third parties. For example, a shipping fulfillment center or retailer like Amazon might require you to carry a certain amount of business insurance in order to work with them. Even if you’re operating your business out of your home, your personal or homeowner’s insurance policy won’t protect your business inventory, so it’s important to explore dedicated business insurance to keep your growing company protected.

Marketplace insurance requirements at a glance

If you sell on a major ecommerce marketplace, you may need to carry commercial liability insurance to remain in compliance with the platform's seller agreement. Here's what to know about the biggest platforms:

Amazon: You must obtain and maintain commercial liability insurance within 30 days after exceeding $10,000 in gross proceeds in any single month. Your policy must carry a minimum limit of $1 million per occurrence and in aggregate, name "Amazon.com Services LLC and its affiliates and assignees" as additional insureds, and have a deductible no greater than $10,000. Read Amazon’s policy here.

Walmart Marketplace: You're required to submit a Certificate of Insurance (COI) with general liability and product liability coverage if your gross merchandise volume exceeds $100,000 in any 12-month period, or if Walmart notifies you directly. Policy limits must be at least $1 million per occurrence and $2 million aggregate, and the policy must name "Walmart Inc., its subsidiaries, and its affiliates" as additional insureds. Read Walmart’s policy here.

Etsy: Etsy does not require sellers to carry liability insurance. The platform offers a Purchase Protection Program for sellers that may cover buyer refunds on eligible orders up to $250 (including shipping and taxes), but this program is not an insurance policy and does not cover product liability claims. If a product you sell causes injury or property damage, you are responsible for any resulting claims.

Even if you sell on a platform that doesn't mandate insurance, carrying product liability coverage protects your business from claims from buyers.

Many business insurance types overlap in their coverage, and it’s important to choose policies that are cost-effective, flexible, and cover your business operations adequately. Doing your research to ensure that your business is covered based on its industry, location, and shipping practices will help prevent out-of-pocket expenses should something happen. Below, we outline the most common types of insurance used by ecommerce businesses.

Below, we outline the most common types of insurance used by ecommerce businesses, along with an estimated cost. The actual cost will depend on a variety of factors, including the extent of your coverage and policy limits, business location, products you offer, number of employees, business assets, and previous claim history. 

Business owner’s policy (BOP)

If your business employs fewer than 100 people, operates out of a small workspace, and makes less than $1M in annual revenue, you might be eligible for a business owner’s policy, or BOP. A BOP combines many different insurance coverages into a single policy, making it a flexible and affordable way to protect your business.

When purchasing a BOP, discuss the various coverages with your agent and what you can expect in the event of something like a natural disaster where you might rely on several coverages within the policy. 

In the aftermath of recent hurricanes in Florida, for example, businesses rushed to file claims. A BOP could cover multiple claims in this case, such as any damaged property and business interruption. The more quickly a business files a claim, the faster you’ll have an understanding of what your policy covers. 

General liability insurance

For businesses that are too large to be eligible for a BOP, general liability insurance can cover liabilities, including claims of bodily injury, property damage, or personal and advertising injury such as slander or copyright infringement.

Keep in mind that if you’re purchasing general liability insurance, you will likely need additional policies such as cyber insurance or workers’ compensation insurance. 

For example, if an employee slips and falls in your warehouse, general liability insurance can help pay for their hospital and treatment bills. If your coverage includes product liability insurance, your coverage can also cover any bodily injuries that your products may cause.

Product liability insurance

This business insurance can be helpful for ecommerce businesses to protect your online store from third-party claims of bodily harm or property damage caused by your products due to manufacturing defects, design flaws, or mishaps caused by inaccurate marketing or inadequate warnings. Product liability insurance can also cover medical bills and legal fees.

For example, if a customer were to use a product and injure themselves due an issue in how it was manufactured, product liability coverage can protect your business from legal liability and costs. In 2024, QVC recalled over one million pairs of oven gloves due to a burn hazard. The company had 92 reports of minor burns involving the product. In a situation like this, product liability insurance could cover any medical bills or claims from the injured customers. 

Estimated cost: $35 - $165/month; more if the product is considered high risk

Business income coverage

Also known as business interruption insurance, this insurance covers your payroll if your business closes due to a covered incident.

For example, if a fire damages your warehouse and you need to temporarily stop operations, business income coverage can protect against certain financial losses that are sustained while the business is unable to operate (referred to as a period of restoration).

Insurance Services Office (ISO) worksheets from insurance companies can help create an accurate estimate for your business income coverage, with estimates accounting for worst-case scenarios. There are several worksheets available for free online.

Estimated cost: $40 - $130/month

Commercial property insurance

Commercial property insurance covers damage to your commercial business property or office space, if your ecommerce company has one. This coverage would apply to things including your office furniture, tools, and equipment.

If you rent, you’ll still need commercial insurance for your property. The landlord will have insurance for the physical building, but you’ll need insurance to cover damage or theft of your belongings. 

For example, if a tornado cracks your office windows, commercial property insurance can help pay for the repairs. In January 2025, over 16,000 structures were damaged by wildfires in Los Angeles. Business owners with commercial property insurance were able to file claims to cover the cost of rebuilding and replacing damaged assets. 

Keep in mind that standard commercial property insurance covers inventory and equipment at the business location listed on your policy. Anything in transit or stored elsewhere would need to be covered under inland marine/cargo insurance (see below).

Estimated cost: $60 - $250/month, but it depends on the value of the property being insured

Inland marine/cargo insurance

This policy covers goods that are damaged, lost, or stolen while in transit or stored at an off-site location. Standard commercial property insurance typically doesn't cover these situations.

You should consider this coverage if you ship physical products to customers, move inventory between warehouse locations, or store stock at a third-party fulfillment center. For example, if your 3PL warehouse experiences a flood and $40,000 of your seasonal inventory is destroyed, your commercial property policy likely won't cover the loss because the inventory wasn't at your primary business location. Inland marine insurance would.

This coverage can also protect goods in transit. If a shipment of products is stolen from a delivery truck before reaching your fulfillment center, inland marine would cover the replacement cost up to your policy limit.

Estimated cost: approximately $29/month. Actual cost depends on the value of inventory being insured, your shipping volume, and your claims history.

Commercial auto insurance

Commercial auto insurance is necessary if your business operates any vehicles. If your employees are driving for work, such as to make deliveries on behalf of your ecommerce business, commercial auto insurance can cover the cost of car accidents. Most states require coverage for vehicles owned by a business. 

If your business uses a van to transport orders to a local shipping hub and your driver hits a parked car on the way, commercial auto insurance covers the repair costs for both vehicles. Personal auto policies typically exclude accidents that occur during business use, so relying on an employee's personal coverage would leave you exposed.

Estimated cost: $171/month

Workers’ compensation insurance

Workers’ compensation insurance provides your employees with benefits if they’re injured or fall sick while working. Policies typically include employer’s liability insurance, which covers the cost of lawsuits related to employee injuries.

Most states require businesses with employees to carry workers' compensation insurance, though requirements vary. Texas is a notable exception and does not mandate workers' comp for most private employers (though many Texas businesses still carry it voluntarily). Check your state's specific requirements to make sure you're in compliance. 

In the U.S., it's a legal requirement for all businesses to have workers’ compensation insurance. However, costs and rules on the types of employees that need coverage vary by state, so it’s important to look into your local regulations to make sure you’re complying with the appropriate requirements

For example, if an employee develops back problems from years of sitting for their office job, this coverage can help pay their medical bills. Or, if you have warehouse staff, people handling inventory could experience injuries from lifting heavy items. 

Estimated Cost: $86/month

Cyber insurance

Cyber insurance, or data breach insurance, can help if your business faces computer-related attacks, such as malware, phishing, and ransomware, or if a laptop with confidential information is stolen, data breach insurance will cover the costs. Costs might include customer notification, fraud monitoring services, and other costs required by state data breach laws.

In 2023, more than 40% of small businesses reported a cyber attack. According to the insurance company Hiscox, the median cost of a cyber attack is $8,300 per year. GrubHub, for example, experienced a security breach that compromised user data, driver data, merchant data, hashed passwords, and partial credit card details. 

An example is a phishing attack that compromises your customer payment data. If an employee clicks a malicious link, a hacker could gain access to your payment processing system. Cyber insurance covers the costs of notifying the affected customers, providing credit monitoring services, and managing any regulatory penalties. Without this coverage, even a small data exposure incident can cost tens of thousands of dollars to respond to the incident.

Estimated cost: $57/month

How to get ecommerce business insurance

Before settling on a business insurance policy, it’s important to research your options, compare quotes, and speak with reputable agents. Independent agents can often source better deals because they sell insurance products from a range of providers. You may want to connect with fellow ecommerce business founders to find an agent that understands your needs who can match you with a provider you can trust.

Product recall expense insurance

Product liability insurance covers lawsuits from customers who are injured by your product. But it does not cover the logistical costs of actually pulling a defective product from the market. That's where product recall expense insurance comes in.

This coverage pays for the direct costs of a recall, including notifying your customers, shipping and transportation, warehouse storage, disposal of defective inventory, and hiring additional personnel to manage the process. It can be added to your general liability policy as an endorsement or purchased as a standalone policy for higher limits.

Let’s say you sell portable phone chargers containing lithium batteries, and a manufacturing defect causes overheating in a specific production batch. You may need to issue a voluntary recall. Product liability insurance would cover any expenses related to customer injuries, while product recall expense insurance would cover all of the logistical costs.

Estimated cost: When added as a general liability endorsement, product recall coverage typically has sub-limits of $25,000 – $50,000, with premiums varying widely based on product type, sales volume, and risk category. 

If you're wondering “What insurance do I need for an ecommerce business?” the answer depends on what you sell, how you sell it, and who works for you. Walk through these prompts to identify which policies are most relevant to your business.

Do you sell physical products? If yes, at a minimum, you need general liability insurance (or a business owner's policy) and product liability insurance. Any physical product can cause injury or property damage, and you can be held liable as the seller even if you didn't manufacture it.

Do you store inventory or use a 3PL? If yes, consider commercial property insurance to cover inventory you own and inland marine/cargo insurance to cover goods in transit or stored at a third-party warehouse. Standard commercial property policies typically don't cover inventory at off-site locations or while it's being shipped.

Do you collect customer data or process payments online? If yes, you need cyber insurance. Any ecommerce business handling email addresses, payment information, or login credentials is a potential target for data breaches and phishing attacks.

Do you have employees? If yes, you almost certainly need workers' compensation insurance that meets state-specific requirements. You may also need to carry short-term disability coverage, depending on your state.

Do you operate vehicles for deliveries or pickups? If yes, you need commercial auto insurance. Personal auto policies typically exclude accidents that happen during business use.

Do you sell products that could be recalled? If yes, consider adding a product recall expense endorsement to your general liability policy. Standard product liability insurance covers lawsuits from injuries, but it does not cover any logistical costs of pulling a defective product from the market.

If you answered "no" to most of these prompts, a basic general liability policy might be enough for now. Reassess your coverage as your business grows. The type of ecommerce business insurance you need at $50,000 in annual revenue will look different at $500,000 or $5,000,000.

Many insurance policies are tied to your business income, which you can find by calculating your gross receipts or sales. Your business income includes all items and services you sell at your business.

Follow these steps to calculate your ecommerce business income:

1. Add up your total revenue.
2. Subtract your business’ expenses and operating costs from your total revenue. This will lead to your business’ earnings before tax.
3. Deduct taxes from your business earning to find your business’ net income. Your net income will be your business income.

Here's an example:

You run a direct-to-consumer skincare brand with $500,000 in annual revenue. Your cost of goods sold (ingredients, packaging, manufacturing) is $175,000, and your other operating expenses (marketing, software, rent, shipping) total $200,000. 

$500,000 (revenue) − $175,000 (COGS) − $200,000 (operating expenses)
= $125,000 (earnings before tax)

You also pay $30,000 in taxes, so your net income is $95,000.

$125,000 − $30,000 = $95,000 (net income)

Your net income is one input for determining your business income coverage limit. But the more important figure for business interruption insurance is how much income you'd lose during a shutdown. To calculate this, estimate your period of restoration, or the time it would take to resume normal operations after a covered incident. 

If a warehouse fire shut down your fulfillment for three months, you'd need coverage for roughly one quarter of your annual revenue ($500,000 * 0.25 or $125,000). You’d deduct any expenses that would stop during the shutdown (like variable shipping costs) and include any expenses that you’d need to keep paying (like rent and software subscriptions).

You'll also need to decide whether to include payroll in your business interruption limit. If you include payroll, you can retain your employees during a shutdown, but the higher limit would increases your premium. Excluding payroll keeps your premium lower, but it means you'd need to cover employee wages out of pocket or risk losing your team. 

For some insurance plans, you will receive an audit at the end of each policy year before renewal, where you’ll owe or receive the difference between the amount you originally paid and the actual amount you owe. The actual amount is calculated based on your sales numbers, income, and losses.

Before settling on a business insurance policy, it's important to research your options, compare quotes, and speak with reputable agents. Independent agents can often source better deals because they sell insurance products from a range of providers. You may want to connect with fellow ecommerce business founders to find an agent who understands your needs and can match you with a provider you can trust.

In order to get business insurance quotes for your ecommerce business, you’ll need this information:

• Business name: Including your legal business or incorporation name and the trade name you operate under, if you have one.
• Your address: Where you operate and any physical locations of the business.
• Legal entity: The type of entity you operate as, such as a sole proprietorship or LLC.
• Property: Include unique features of your property, how much coverage you’ll want on the building and the items you own, and any property information that can’t be found online.
• Prior insurance: Include the name and relevant coverage information of any prior insurance companies you may have used, as well as related work experience you might have in the industry.
• Loss runs: Your current insurance company can give you a loss run, which helps a new insurance company choose what rates you’ll have. The lower your losses, the better your rates.
• Payroll numbers: Payroll numbers include prior losses, the industry your business is in, the number of people you employ, and the size of your payroll. These numbers can determine workers' compensation policies.
• Sales numbers: Sales figures can help determine your general liability rates.

Not sure where to start with finding the right insurance company or agent? Here are some things to consider:

• Identify which policies you need. This will help agents recommend the right policies as you shop around. Make sure you cover all of your risks.
• Get quotes from multiple insurance providers. An insurance broker can also help you find the right insurance coverage for your ecommerce business.
• Check the provider’s reputation. Look at customer reviews regarding response times and the ease of the claims process.

You should also reassess your insurance needs every year, including the types of insurance and the policy limits. 

As an owner or operator, understanding and managing the risks in running a business is vital to its success. An ecommerce business differs from a physical storefront or a business with offices and employees — but is still exposed to certain liabilities. By planning ahead and preparing for potential mishaps, you can focus on scaling and growing your business with peace of mind.