Do I Need Business Insurance?

You’re typically required to purchase one or more types of business insurance if you employ more than a set number of workers determined by your state, you or your employees drive a company car or if a job contract demands it. Other types of commercial insurance for your business are not always required, but may be useful depending on your industry.

Business insurance is a group of policies that protect companies from financial losses caused by accidents, lawsuits, property damage and operational disruptions.

Read on to learn more about the types of business insurance you might want to consider, which might be required and how to get them.

On This Page

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  When Is It Required To Have Insurance for My Business?

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  Is Business Insurance Required?

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  How Much Does Business Insurance Typically Cost?

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  Business Insurance Requirements at a Glance

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  How Do I Get Business Insurance?

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  FAQs

When Is It Required To Have Insurance for My Business?

A business owner will likely need some level of business insurance to protect against potential risks. Without coverage, you’ll be liable for paying costs involving accidents, equipment losses and legal fees that your business is found responsible for, even in cases of fires or theft that you had little to no control over. However, several types of business insurance can protect you against specific scenarios and perils.

Depending on your state, you may be required to have certain types or amounts of business insurance. For example, some states require businesses to have commercial auto coverage if employees use business-owned vehicles as part of their work. Businesses may also be required to purchase business insurance as part of loan agreements, client contracts or when renting business space from a landlord.^[1]

Most businesses need some form of business insurance, though legal requirements vary by state and industry. Business insurance may be required when a company hires employees, operates vehicles, signs contracts or must meet professional licensing rules.

Types of Business Insurance You Might Need

Below are a few examples of different types of business coverages, along with scenarios your business might encounter where they could be beneficial:

• General liability insurance: Protects your business from bodily injury or property damage caused by you or an employee. For example, if a customer slips in your store and falls, causing a back injury, general liability insurance can help cover their medical expenses. Premiums for this coverage from The Hartford are about $68 per month, though they vary by insurer.^[2]
• Commercial property insurance: Covers damage to your physical business assets, including equipment, inventory and the building itself if you own it. For example, this policy could help cover costs of vandals breaking into your warehouse, damaging your inventory and stealing your equipment. Premiums from NEXT Insurance range from $18 to $100 per month, or more, based on your business, but costs can vary between insurance companies.^[3]
• Business income insurance: Also called business interruption insurance, this policy covers a business's lost income and operating expenses due to a covered event. For example, if a fire were to break out in your business, this policy type could help cover lost income and temporary relocation expenses. Business income insurance is typically part of a business owners policy, which also includes general liability and commercial property, and costs an average of $141 per month from The Hartford, though premiums will vary by insurer.^[4]
• Professional liability insurance: Also called errors and omissions (E&O) insurance, this policy covers claims of negligence, misrepresentation, inaccurate advice and personal injury such as libel or slander. For example, this insurance could help cover expenses related to a failed audit when your accounting firm makes an error in preparing a client's tax return. While costs may vary based on your insurer, premiums from The Hartford average $76 per month for professional liability coverage.^[5]
• Workers' compensation: This policy provides benefits to employees who suffer a work-related illness or injury, covering medical expenses and lost wages. As we’ll discuss later on, having this coverage may be required if you have employees. On average, businesses pay roughly $81 per month for this coverage with The Hartford, though costs may vary by insurer, your state and your business.^[6]
• Commercial auto insurance: This coverage provides liability coverage when an employee is at fault for hurting someone or damaging another’s property while driving a company car. It may also include first-party benefits, like physical damage and medical coverage. Depending on your insurer, monthly costs for commercial auto policies can range from $50 to $200 per vehicle.^[7]
• Inland marine coverage: This insurance policy covers your equipment and tools while they’re transported between locations over land. For example, if you were a farm owner transporting livestock, this coverage would help cover expenses if they were injured during transit. Costs for this coverage will vary based on the value of the property being transported, coverage limits, the location over which goods are transported and the risk involved in transporting them.^[8]
• Cyber insurance: This coverage protects businesses against financial losses resulting from cyberattacks or data breaches. For example, it might help cover legal expenses after your database of clients’ personal information was hacked. Depending on your business and insurer, average monthly costs for cyber insurance can range from $100 to more than $500.^[9]
• Product liability insurance: This coverage helps protect your business from losses arising from liability claims related to products it manufactures, distributes or sells. For example, if a manufacturing company sold a defective toy that became an unmarked choking hazard for children, product liability insurance could cover the claim expenses. Although premiums vary by insurer and industry, the average monthly cost for product liability insurance from The Hartford is $68.^[10]
• Commercial umbrella policy: This insurance offers additional coverage beyond your business’s liability policies, such as general liability or auto liability. For example, if you had to pay a legal settlement worth $1.5 million and only had $1 million in general liability coverage, commercial umbrella insurance could help cover the remainder up to your limits so you don’t have to pay it out of pocket. Premiums will vary by insurer, but start as low as $25 per month with NEXT Insurance.^[11]

Is Business Insurance Required?

There are several scenarios when business insurance would be required to operate your business. Whether a business insurance policy is required due to a state mandate or by contract is usually based on your state’s laws, your business size, and your industry. Some scenarios where business insurance may be required include:

• You need it to get licensed: Certain professions, such as lawyers, doctors, and accountants, may be required by their licensing boards or professional associations to carry specified types of coverage. For example, California’s Medicaid program requires doctors to carry at least professional liability and general liability insurance.^[12]
• You employ workers: Workers’ compensation is typically required for businesses with employees, though requirements vary by state and depend on the number of employees. For example, Hawaii requires businesses to carry workers’ compensation insurance if they employ just one worker, but Mississippi sets the minimum at five workers.^[13][14] Going without workers’ compensation insurance can result in fines and legal action by your employees.
• You own work vehicles: As with a personal vehicle, it is illegal to drive a commercial vehicle without auto insurance. The risk of not having appropriate insurance can result in a liability claim that is 400% greater than a personal auto claim.^[15]
• You are contractually obligated: Contracts with clients, vendors or landlords may require you to carry certain types of insurance coverage as a condition of doing business. For example, contractors may need to supply a certificate of insurance before they can bid on a job or contract.^[16]

How Much Does Business Insurance Typically Cost?

The cost of business insurance will vary based on the policies you might need. For example, a business owners policy, which includes general liability, commercial property and business interruption coverages, costs $141 per month on average from The Hartford, with the option to add additional coverages like workers’ compensation and commercial auto. However, your costs will vary based on several factors, including:^[17][18]

• Business type and size: Companies with hundreds of employees or those engaged in high-risk operations such as construction or transportation may pay higher premiums than a tiny retail outlet.
• Location: Your insurance premiums may be higher if your company is located in a region with a higher crime rate or greater vulnerability to natural disasters.
• Coverage types: Your premium will increase if you add more coverage to your policy.
• Claim history: Premiums will be higher for businesses with a recent history of multiple claims.
• Deductible: Opting for a higher deductible will usually lower your monthly premium.
• Insurance company: Insurers may use underwriting techniques that weigh factors differently or may offer alternative discounts, which could affect how much you pay each month.

What Happens if I Don't Have Business Insurance?

Without required business insurance, you could face significant financial penalties, out-of-pocket expenses or lost work.

Many states have penalties for not having the necessary insurance coverage, with the specific coverages varying by state. For example, in California, businesses are required to offer workers’ compensation insurance or could face the choice of paying double what they would have paid in workers’ comp premiums or a flat fee of $1,500 per employee.^[19] Similarly, driving without commercial auto insurance for your business vehicle could result in fines of up to $200 plus additional costs for penalty assessments.^[20]

Even if certain coverages aren’t required, you could face expensive out-of-pocket costs without them. If a fire broke out or another covered hazard occurred and damaged your business's equipment, you would be left paying for replacements and repairs out of pocket without commercial property insurance. Additionally, you could face legal expenses out of pocket if sued over a customer slipping and falling in your store without general liability coverage.

Some clients and customers may also refuse to work with you if you lack proper insurance coverage, resulting in lost income that may overshadow what you would have paid in insurance premiums.

Business Insurance Requirements at a Glance

• Some business insurance policies are legally required, such as workers’ compensation and commercial auto coverage.
• Other policies, like general liability or cyber insurance, help protect businesses from financial losses but may not be required by law.
• Requirements often depend on state laws, employee count, vehicles used and contractual obligations.

How Do I Get Business Insurance?

When looking to get business insurance, you’ll first need to determine what types of coverage you need. For example, your business may need workers’ compensation and commercial auto insurance, but these may not be necessary if your business doesn’t use a company vehicle or have employees other than yourself.

Check with three to five different insurance companies that offer the policies your business needs. This will help show the range of cost options compared to coverage. You’ll typically need to get quotes one at a time, which can become tedious. Consider speeding up this process by using an insurance marketplace like SmartFinancial. After answering a brief questionnaire, we’ll connect you with a licensed insurance agent to help you get the policies your business needs to thrive.

Click here for free business insurance quotes today!