What insurance does a small business need?
Last reviewed . General information, not legal or tax advice.
It depends on your risks and whether you have employees. Most businesses consider general liability insurance; product sellers add product liability, and service providers professional liability. Once you hire, coverage such as workers' compensation and unemployment insurance is required, with details set by your state. A home business may need a policy rider or a separate policy.
What are the main types of business insurance?
The SBA describes six common kinds of coverage:
| Coverage | Who it is for | What it covers |
|---|---|---|
| General liability | Any business | Financial loss from bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlements or judgments |
| Product liability | Businesses that make, wholesale, distribute or sell a product | Loss when a defective product causes injury or bodily harm |
| Professional liability | Businesses that provide services | Loss from malpractice, errors and negligence |
| Commercial property | Businesses with significant property and equipment | Loss and damage to company property from events such as fire, smoke, wind, hail and vandalism |
| Home-based business | Businesses run from the owner's home | A rider on a homeowner's policy for a small amount of business equipment and liability for third-party injuries |
| Business owner's policy | Most small businesses, especially home-based ones | A bundle of typical coverages in one package, which can simplify buying and save money |
What insurance is required by law?
For a business with no employees, the SBA's list of legally required coverage does not apply, though state rules, a lease, a client contract or a licensing board may still require some. Once you have employees, the SBA lists workers' compensation, unemployment insurance and disability insurance as required for businesses with employees, and notes that some states require more.
These requirements run largely through the states. The U.S. Department of Labor directs people injured while working for private companies to their state workers' compensation board, and the SBA notes that state employment taxes often include workers' compensation, unemployment insurance and temporary disability insurance. Check your state's labor and insurance department websites before your first hire.
Doesn't an LLC already protect me?
Partly. An LLC or corporation can protect your personal property from lawsuits against the business, the SBA says, but that protection has limits, and it does nothing to pay the business's own losses. If a customer is hurt by your product or a fire destroys your stock, the LLC itself still has to pay, and it may not have the money.
Insurance fills that gap. The SBA's general rule is to insure against losses you could not afford to pay on your own. Structure and insurance work together; see LLC vs. sole proprietorship.
Does my homeowner's or renter's policy cover my business?
Don't assume it does. Home policies are written for personal use, so read yours or ask your insurer before you rely on it for business equipment, inventory or customer visits. The SBA describes a home-based business rider that adds coverage for a small amount of business equipment and liability for third-party injuries, and points to a business owner's policy as especially suited to home-based owners.
Ask your agent specifically about inventory stored at home, customers or students coming to your home, deliveries you make in your own car, and products you make in your kitchen. For food made at home, see starting a cottage food business.
How do I buy business insurance?
The SBA suggests a simple order: first buy what the law requires, then cover the other risks you could not pay for yourself. Its buying steps:
- Assess your risks. List what could go wrong: injuries, damaged property, a defective product, a mistake in your work, a lawsuit, or a seasonal event at your location.
- Find a reputable licensed agent. Commercial agents are paid commissions by insurers, the SBA notes, so look for one who is clearly focused on your needs.
- Shop around. Prices and benefits vary significantly, so compare rates, terms and benefits from several agents.
Revisit your coverage when your risks change: a new product, a first employee, a lease or a move. And keep the cost in your budget from the start; it belongs in your startup costs alongside licenses and equipment.
Frequently asked questions
Do I need insurance if I have an LLC?
Usually it is still wise. An LLC can shield your personal assets from many business debts and lawsuits, but the SBA notes that protection has limits, and it does not pay the business's own losses. General liability, plus product or professional liability where they fit, covers claims the LLC would otherwise pay itself.
Is general liability insurance required by law?
Not generally for a business without employees, though a landlord, client or event organizer may require proof of coverage in a contract before working with you. The SBA describes general liability as coverage any business should consider, for injuries, property damage and lawsuits.
What insurance do I need when I hire my first employee?
The SBA lists workers' compensation, unemployment insurance and disability insurance as required for businesses with employees, with details that depend on your state. Workers' compensation claims for private employers go through state boards, the Department of Labor says. Check your state's requirements before you hire, so coverage is in place when your employee starts.
What is a business owner's policy?
A business owner's policy combines the typical coverage options into one bundle. The SBA describes it as suited to most small business owners, especially those running a business from home, and notes that buying a bundle can simplify the process and save money compared with separate policies.
Sources
- Get business insurance, U.S. Small Business Administration. https://www.sba.gov/business-guide/launch-your-business/get-business-insurance
- Workers' compensation, U.S. Department of Labor. https://www.dol.gov/general/topic/workcomp
- Pay taxes (state employment taxes), U.S. Small Business Administration. https://www.sba.gov/business-guide/manage-your-business/pay-taxes
- Choose a business structure, U.S. Small Business Administration. https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
This guide is general information, not legal or tax advice. Rules differ by state and city and change over time, so confirm the details with the official sources above or a licensed professional.