Do I Need Business Insurance? Coverage, Costs, & How To Choose
Business insurance is a necessity for small businesses. Without it, you may pay large sums out-of-pocket for damages and legal claims.
-
WRITTEN & RESEARCHED BY
Editor & Senior Staff Writer
Last updated onUpdated
-
REVIEWED BY
Expert Contributor
Our content reflects the editorial opinions of our experts. While our site makes money through referral partnerships, we only partner with companies that meet our standards for quality, as outlined in our independent rating and scoring system.
Key Takeaways
- Most businesses need insurance to protect against lawsuits, property damage, and unexpected losses.
- Requirements vary, but some coverage -- like workers’ comp or auto insurance -- may be legally mandated.
- The right mix of policies depends on your industry, risks, and business operations.
Not sure if you need business insurance? The bigger question is how much risk you’re willing to take without it.
Many small businesses are underinsured due to confusion about coverage. This guide can help.
Table of Contents
Does Your Small Business Need Insurance?
Some types of business insurance are legally required, depending on your operations and location. For example, most businesses with employees must carry workers’ compensation insurance, and businesses with company vehicles need commercial auto coverage.
Under federal law, businesses with 50 or more full-time employees may be required to offer health insurance. Smaller businesses that choose to provide coverage may qualify for tax credits.
In some cases, landlords may also require coverage — such as commercial property or renters insurance — as part of a lease agreement.
Even when not required, business insurance is an important way to protect your company from financial risk.
Why Your Business Needs Insurance
If you’re unsure about business insurance, here are seven reasons to consider it:
- It may be required: Many states require coverage like workers’ compensation if you have employees, and federal law may require health insurance for larger businesses.
- You could face a lawsuit: Liability insurance helps protect your business from costly legal claims.
- Disasters happen: Property and liability coverage can help you recover from events like fire, theft, or vandalism.
- You may need proof of insurance: Clients, landlords, and lenders often require coverage before working with you.
- It supports your employees: Offering benefits like health or life insurance can help attract and retain talent.
- It may offer tax advantages: Many business insurance premiums are tax-deductible (check with a tax professional).
- It’s often affordable: Basic coverage can be relatively low-cost compared to the financial risk of going without it.
Types Of Small Business Insurance
Once you decide to insure your business, the next step is choosing the right coverage. Your insurance provider can help, but it’s useful to understand the most common policy types:
| Insurance Type | What It Covers |
|---|---|
| General Liability | Bodily injury, property damage, and legal claims like slander or false advertising |
| Commercial Property | Your building, equipment, and inventory from events like fire or theft |
| Professional Liability (E&O) | Financial losses caused by errors, omissions, or professional mistakes |
| Workers’ Compensation | Employee injuries, including medical costs and lost wages |
| Commercial Auto | Business-owned vehicles and accidents involving those vehicles |
| Business Owner’s Policy (BOP) | Bundle of general liability and property insurance |
| Renters Insurance | Property and liability protection for leased business spaces |
| Business Interruption | Lost income and expenses if your business can’t operate |
| Cyber (Data Breach) | Costs related to data breaches, including notification and recovery |
| Disaster Coverage | Add-ons for risks like floods or earthquakes not covered by standard policies |
Industry Specific Insurance
Every business should start with basic coverage like general liability or a business owner’s policy (BOP), along with property or renters insurance.
From there, additional coverage depends on your industry. Here are some common examples:
The Bottom Line On Small Business Insurance
Most small businesses need at least basic insurance coverage, and your exact needs will depend on your size, industry, and location.
While it can be difficult to know where to start, understanding your risks and coverage options can help you make informed decisions.
Taking the time to choose the right insurance — starting with our picks for the best insurers — can help protect your business from unexpected financial loss.
Erica Seppala
Editor & Senior Staff Writer at Merchant Maverick
Erica has been writing about small business finance and technology since 2008. She joined Merchant Maverick in 2018 and specializes in researching and reviewing business software, financial products, and other topics to help small businesses manage and grow their operations. Her expertise has been cited in MSN, Reader's Digest, Vox, U.S. News & World Report, and Real Simple. She is a Certified ProAdvisor for QuickBooks Online and QuickBooks Payroll, a graduate of Limestone University, and currently resides in Greenville, South Carolina.
View Erica Seppala's professional experience on LinkedIn.
Latest posts by Erica Seppala (see all)
- Employment Hero Review - June 11, 2026
- How To Start A Business - April 30, 2026
- Finix Review - April 7, 2026
- What Is Sam’s Club Point Of Sale By Clover? - September 8, 2025
- What Is Costco Merchant Services? - September 8, 2025
