Small business insurance guide: the coverage you need and what's required

Small business insurance is a set of policies that protect a business from lawsuits, property damage, employee injuries and lost income. Most small businesses start with general liability, or a business owner's policy that bundles liability with property coverage, then add workers' comp once they hire, commercial auto for business vehicles, and professional liability if they give advice or professional services.

By the Fast Insurance Group editorial team

Published by Marcus L. Barber, former licensed Maryland property and casualty producer (2010–2012)Reviewed by Marcus L. Barber on October 17, 2026Updated October 17, 2026

This guide is general education, not advice for your situation. We're an independent publisher, not an insurer or agent, and we may earn a commission from partner links. How we make money.

Key points

General liability covers injuries and property damage your business causes to others. A BOP bundles it with property and business income coverage.
Workers' comp is required for employers in nearly every state; Texas is the main exception.
Leases, client contracts and licensing boards often require coverage, commonly $1 million per occurrence and $2 million aggregate.
A homeowners policy usually covers only a few thousand dollars of business property and excludes business liability.

The main types of business insurance

Coverage	What it pays for	Who needs it
General liability	Injuries and property damage you cause to others, plus libel and slander claims and legal defense	Almost every business
Commercial property	Your building, equipment and inventory after fire, storms, theft or vandalism	Businesses with a location or equipment
Business owner's policy (BOP)	Liability, property and business income bundled together	Small, lower-risk businesses
Business interruption (business income)	Lost earnings and ongoing bills like payroll after a covered shutdown	Businesses that would lose income if closed
Workers' compensation	Employees' medical care and lost wages from work injuries	Employers, required in nearly every state
Professional liability (E&O)	Claims that your advice or services caused a client financial harm	Consultants, accountants, IT, agents and other professionals
Commercial auto	Liability and damage involving vehicles used for business	Businesses with vehicles or employees who drive
Cyber liability	Data breaches and cyberattacks	Businesses that store customer data
Employment practices liability (EPLI)	Claims of harassment, discrimination or wrongful termination	Employers
Commercial umbrella	Extra liability above your other policies' limits	Businesses with larger risks or contract requirements

What the law requires

Workers' compensation. The National Association of Insurance Commissioners (NAIC) says nearly all states require it, most even with one employee. Texas is the main exception: most private employers there can choose not to carry it, but must report that choice to the state.
Temporary disability insurance. The U.S. Department of Labor's 2021 comparison lists programs in California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico.
Unemployment insurance taxes, paid through your state, once you have employees.
Auto liability on any vehicle your business owns, as with any car.

What contracts require

Even when the law doesn't require coverage, the people you do business with often will. Landlords, larger clients, general contractors and governments commonly ask for proof of general liability before you start work. The City of San Diego's contracting insurance checklist, for example, lists minimum limits of $1 million per occurrence and $2 million aggregate and requires the city to be named as an additional insured. Licensing boards for some trades also require coverage. You prove it with acertificate of insurance.

Where most businesses start

A BOP or general liability. If you qualify, a BOP is usually the simplest start.
Workers' comp as soon as you hire, if your state requires it.
Professional liability if clients pay for your expertise.
Commercial auto or hired and non-owned auto coverage if vehicles are involved.
Cyber and umbrella as your data and contracts grow.

Working from home? A homeowners policy usually covers only a few thousand dollars of business property and excludes business liability; see home-based business insurance. Set up as an LLC? See business insurance for an LLC.

How to buy

The U.S. Small Business Administration (SBA) recommends three steps:

Assess your risks. Think about what could go wrong: injuries, lawsuits, property loss, data breaches, vehicle accidents.
Find a reputable, licensed agent. The SBA notes agents earn commissions, so choose one who focuses on your interests. Check the license with the NAIC's free Insurance Agent Search.
Shop around. Prices and benefits vary a lot, so compare several quotes for the same coverage.

The NAIC also suggests reviewing your policies every year as your business changes. For pricing, see what small business insurance costs.

Taxes

Premiums for business insurance are generally deductible. The IRS instructions for Schedule C direct sole proprietors to deduct premiums paid for business insurance on line 15. Some aren't, such as policies that replace your own lost earnings due to sickness or disability, so check with a tax professional.

Our small business guides

Common questions

What insurance does a small business need?

Most need general liability, often through a business owner's policy that adds property and business income coverage. Add workers' comp if you have employees, commercial auto for business vehicles, and professional liability if you give advice or professional services. Your lease, client contracts or licensing board may require specific coverage.

Is business insurance required by law?

Some is. Nearly every state requires workers' comp once you have employees (Texas is the main exception), and business vehicles need auto liability coverage. A few states also require temporary disability insurance. General liability usually isn't required by law but is often required by contract.

Does an LLC need business insurance?

An LLC usually protects your personal assets from the business's debts, but it doesn't protect the business's own assets, and members can still be liable for their own mistakes. Insurance pays for lawsuits and losses the LLC itself faces.

How do I check that an insurance agent is licensed?

Use the NAIC's free Insurance Agent Search or your state insurance department's website. You need the agent's name, city and state, and it shows which lines of insurance they can sell.

How this guide was made

We drafted this guide with help from AI writing tools, working from the sources listed below. Every fact was checked against those sources, and Marcus L. Barber read and reviewed the full page, including its title, description and FAQs, before it was published. AI tools don't decide what we publish; a person does. Our editorial standards.

Sources

Get business insurance, U.S. Small Business Administration
Small business insurance, National Association of Insurance Commissioners
Commercial insurance guide, California Department of Insurance
Workers' compensation: Employer resources, Texas Department of Insurance, Division of Workers' Compensation
Comparison of state unemployment insurance laws: Temporary disability insurance, U.S. Department of Labor
Purchasing & Contracting insurance checklist, City of San Diego
Insurance agent/broker search, National Association of Insurance Commissioners
How to choose an insurance agent, National Association of Insurance Commissioners
Instructions for Schedule C (Form 1040), Internal Revenue Service
Consumer's guide to insurance for small business owners (PI-085), Wisconsin Office of the Commissioner of Insurance
Homeowners insurance: Basic coverage, New York State Department of Financial Services