Do I Need Business Insurance?

If you’re asking “do I need insurance for my small business?”, you’re not alone. Business owners from bakers to IT consultants ask the same thing. Whether business insurance is required depends on your state, your industry and whether you have employees, vehicles, a lease or client contracts. Even when it isn’t required, most small businesses carry some coverage, because one lawsuit or loss can cost more than years of premiums. Below is when coverage is typically required, why businesses carry it, and the types most small businesses start with.

Is Business Insurance Required by Law?

In many cases, some coverage is required, but the rules depend on where you operate and what you do:

1. Workers’ compensation: most states require it once you have employees.
2. Commercial auto: vehicles used for business generally need commercial auto insurance.
3. Professional licenses: some professions and licenses require proof of coverage.

Your state’s insurance department or labor agency can confirm what applies to your business.

When Do I Need Business Insurance?

Even when the law doesn’t require it, these moments often do:

1. Hiring your first employee: this is when workers’ compensation usually comes in.
2. Signing a lease: landlords commonly require general liability insurance.
3. Taking on clients: many contracts ask for a certificate of insurance before work starts.
4. Using a vehicle for work: personal auto policies often exclude business use.
5. Applying for a loan: lenders may require coverage on property or equipment.

Why Do Small Businesses Carry Insurance?

Without coverage, the business (and sometimes the owner) pays out of pocket for:

1. Customer injuries: a slip-and-fall at your location or a job site.
2. Property damage: fire, theft or storm damage to equipment, inventory or your building.
3. Lawsuits: claims that your work or advice caused a client a loss.
4. Employee injuries: medical costs and lost wages after a work injury.

Business insurance can cover these costs, so one claim doesn’t drain business or personal savings.

What Insurance Does a Small Business Need?

Most small businesses start with one or more of these:

1. General liability insurance: can cover third-party injuries, third-party property damage and advertising claims.
2. Business owner’s policy (BOP): bundles general liability and property coverage.
3. Commercial property insurance: can cover your building, equipment and inventory.
4. Professional liability insurance: can cover claims that your advice or services caused a loss.
5. Workers’ compensation: can cover employee work injuries.
6. Commercial auto insurance: can cover vehicles used for business.
7. Commercial umbrella insurance: adds liability limits above your other policies.

For a fuller overview, see what business insurance is and our guide to small business insurance.

Do LLCs, Sole Proprietors and Home-Based Businesses Need Business Insurance?

1. LLCs: an LLC can help separate personal assets from the business, but it doesn’t pay claims against the business. Many LLCs carry general liability or a BOP. See LLC insurance.
2. Sole proprietors: there’s no legal separation between personal and business assets, so a claim can reach personal savings. See independent contractor insurance.
3. Home-based businesses: homeowners and renters policies often limit or exclude business activity. See home-based business insurance.

How Do I Get Business Insurance With Tivly?

Tell us about your business with the form at the top of the page or call 877-907-5267. The Tivly team will match you with a partner from our network of 450+, who can walk you through coverage for your business.