Updated: July 18, 2025
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Different business insurance coverage types protect against specific risks, so choose combinations that match your operations.
Most states require business insurance coverage, such as workers' compensation for employees and commercial auto for company vehicles.
Full protection requires additional coverage types, like cyber liability and professional liability.
Business insurance provides financial protection against unexpected costs from accidents, lawsuits, property damage and business interruptions. Without this protection, one lawsuit or natural disaster could end your business.
Most small businesses start with a Business Owner's Policy (BOP) that combines general liability, commercial property and business interruption insurance. You can add specialized coverage based on your industry's specific risks.
Each type of business insurance coverage covers you financially against different risks, so choosing the right combination matters for your company's financial security. What you need depends on your industry, business size and operations.
The table below breaks down the most common coverage types, what they protect against and which businesses typically need them most.
General Liability | Third-party bodily injury, property damage, personal injury claims, legal defense costs | Employee injuries, professional mistakes, cyber attacks, your own property | All businesses, especially those with customer contact |
Commercial Property | Building damage, equipment, inventory, furniture from fire, theft, vandalism, storms | Floods, earthquakes, normal wear and tear, employee theft | Businesses with physical locations, equipment, or inventory |
Workers' Compensation | Employee medical bills, lost wages, rehabilitation, death benefits to beneficiaries from fatal work injuries | Non-work injuries, contractor injuries, emotional distress claims | Required by law for businesses with employees in most states |
Professional Liability (E&O) | Claims of professional mistakes, errors, omissions, failure to deliver services | General liability claims, property damage, employee issues, intentional acts, criminal behavior | Service providers, consultants, professionals giving advice |
Cyber Liability | Data breaches, ransomware, customer notification, legal fees, business interruption | Physical property damage, general liability, employee data misuse | Businesses handling customer data, using computers |
Commercial Auto | Vehicle damage, bodily injury, property damage from business vehicle accidents | Personal vehicle use, employee commuting, maintenance issues | Businesses owning vehicles or employees driving for work |
Business Interruption | Lost income, ongoing expenses when covered events prevent operations | Non-covered property damage, market changes, pandemics (unless specified) | Businesses dependent on physical location or equipment |
Umbrella Insurance | Additional liability limits beyond primary policies for major claims | Property damage, workers' comp, first-party losses | High-risk businesses, those with high-value assets |
Product Liability | Injuries or damage caused by products you manufacture, sell, or distribute | Service-related claims, general business operations, employee injuries | Manufacturers, retailers, distributors |
Directors & Officers (D&O) | Legal defense for management decisions, wrongful termination, discrimination claims | Criminal acts, personal profit, intentional wrongdoing | Corporations, nonprofits, businesses with boards |
Several types of business insurance coverage are required by law, depending on your business operations and location. The requirements vary by state and industry, but most businesses need at least some mandatory coverage.
Almost every state requires businesses with employees to carry workers' compensation insurance. It includes part-time employees in most states, though some states, like Georgia, only require it when you regularly employ three or more people.
You must carry commercial auto insurance in all states except New Hampshire and Virginia if your business owns vehicles. Your personal auto policy won't cover business use of company vehicles.
Some professionals, such as real estate agents, lawyers and financial advisors, must carry professional liability insurance to obtain or maintain their licenses.
Businesses that serve alcohol often need liquor liability insurance to obtain a liquor license. Construction contractors may need specific coverage to meet licensing requirements in their state.
Even when not legally required, you should insure against things you wouldn't be able to pay for on your own. The cost of insurance is typically far less than the potential financial devastation from an uninsured lawsuit, accident or natural disaster. Many businesses without adequate coverage face fines, lawsuits or permanent closure when unexpected events occur.
Each state sets its own rules for business insurance coverage, creating a complex landscape for business owners. Workers' compensation and commercial auto insurance are standard across most states, but you'll find different employee counts, exemptions, and industry rules depending on where you operate.
The table below shows what each state requires, including key exemptions and special rules that might apply to your business.
State | Business Insurance Requirements |
|---|---|
Alabama | Workers' comp required with 5+ employees (exemptions for domestic, farm, casual workers) Commercial auto required for all business vehicles |
Alaska | Workers' comp required with 1+ employees (exemptions for sole proprietors, babysitters, harvest helpers) Commercial auto required for all business vehicles |
Arizona | Workers' comp required with 1+ employees (exemptions for independent contractors) Commercial auto required for all business vehicles |
Arkansas | Workers' comp required with 3+ employees Commercial auto required for all business vehicles |
California | Workers' comp required with any employees (required for certain contractors even without employees) Commercial auto required for all business vehicles |
Colorado | Workers' comp required with 1+ employees Commercial auto required for all business vehicles |
Connecticut | Workers' comp required with 1+ employees (exemptions for household workers <25 hrs/week, sole proprietors, LLC members) Commercial auto required for all business vehicles |
Delaware | Workers' comp required with 1+ employees (exemptions for farm workers) Commercial auto required for all business vehicles |
Florida | Workers' comp required with 4+ employees (1+ for construction) Commercial auto required for all business vehicles |
Georgia | Workers' comp required with 3+ employees Commercial auto required for all business vehicles |
Hawaii | Workers' comp required with 1+ employees Commercial auto required for all business vehicles |
Idaho | Workers' comp required with 1+ employees (includes seasonal and occasional workers) Commercial auto required for all business vehicles |
Illinois | Workers' comp required with 1+ employees (including part-time)<br>Commercial auto required for all business vehicles |
Indiana | Workers' comp required with 1+ employees (exemptions for railroad workers, real estate employees, independent contractors) Commercial auto required for all business vehicles |
Iowa | Workers' comp required with 1+ employees (exemptions for LLC members, domestic workers earning <$1,500, agricultural exchange workers) Commercial auto required for all business vehicles |
Kansas | Workers' comp required unless annual payroll <$20,000 (exemptions for certain agricultural workers, real estate agents) Commercial auto required for all business vehicles |
Kentucky | Workers' comp required with 1+ employees (exemptions for agricultural employees, some domestic workers) Commercial auto required for all business vehicles |
Louisiana | Workers' comp required with 1+ employees (exemptions for private residence workers, unincorporated farm workers, certain musicians, unpaid nonprofit officers) Commercial auto required for all business vehicles |
Maine | Workers' comp required with 1+ employees (exemptions for domestic workers in private homes, certain agricultural workers) Commercial auto required for all business vehicles |
Maryland | Workers' comp required with 1+ employees (exemptions for agricultural businesses <3 employees, businesses earning <$15,000 annually) Commercial auto required for all business vehicles |
Massachusetts | Workers' comp required with any employees regardless of hours (exemption for domestic workers <16 hrs/week) Commercial auto required for all business vehicles |
Michigan | Workers' comp required with 1+ employees working >35 hrs/week or 3+ regular employees Commercial auto required for all business vehicles |
Minnesota | Workers' comp required with 1+ employees (exemptions for sole proprietors, partners, corporate officers) Commercial auto required for all business vehicles |
Mississippi | Workers' comp required with 5+ employees (exemptions for domestic workers, farm laborers, nonprofit religious/cultural organization employees) Commercial auto required for all business vehicles |
Missouri | Workers' comp required with 5+ employees (1+ for construction) Commercial auto required for all business vehicles |
Montana | Workers' comp required with 1+ employees (exemptions for household/domestic workers, amateur athletic officials, church ministers) Commercial auto required for all business vehicles |
Nebraska | Workers' comp required with 1+ employees (exemptions for federal employees, railroad employees, domestic servants) Commercial auto required for all business vehicles |
Nevada | Workers' comp required with 1+ employees Commercial auto required for all business vehicles |
New Hampshire | Workers' comp required with any employees Financial responsibility required but commercial auto insurance not mandatory |
New Jersey | Workers' comp required with 1+ employees Commercial auto required for all business vehicles |
New Mexico | Workers' comp required with 3+ employees (1+ for construction) Commercial auto required for all business vehicles |
New York | Workers' comp required with any employees Commercial auto required for all business vehicles |
North Carolina | Workers' comp required with 3+ employees Commercial auto required for all business vehicles |
North Dakota | Workers' comp required for all employees through monopolistic state fund (includes part-time, seasonal, occasional) Commercial auto required for all business vehicles |
Ohio | Workers' comp required for all employees through monopolistic state fund Commercial auto required for all business vehicles |
Oklahoma | Workers' comp required with any employees Commercial auto required for all business vehicles |
Oregon | Workers' comp required with any employees Commercial auto required for all business vehicles |
Pennsylvania | Workers' comp required for all employees regardless of full-time, part-time, or seasonal status Commercial auto required for all business vehicles |
Rhode Island | Workers' comp required with 1+ employees (exemptions for sole proprietors, some domestic and agricultural workers) Commercial auto required for all business vehicles |
South Carolina | Workers' comp required with 4+ employees Commercial auto required for all business vehicles |
South Dakota | No workers' comp requirement Commercial auto required for all business vehicles |
Tennessee | Workers' comp required with 5+ employees (any number for construction/coal mining, corporate officers count toward headcount) Commercial auto required for all business vehicles |
Texas | No general workers' comp requirement (required for government contractors) Commercial auto required for all business vehicles |
Utah | Workers' comp required with employees Commercial auto required for all business vehicles |
Vermont | Workers' comp required with 1+ employees (exemptions for sole proprietors, casual workers, agricultural workers with payroll ≤$10,000) Commercial auto required for all business vehicles |
Virginia | Workers' comp required with 3+ employees Commercial auto required for all business vehicles |
Washington | Workers' comp required with employees through monopolistic state fund Commercial auto required for all business vehicles |
West Virginia | Workers' comp required with 1+ employees (exemptions for independent contractors, agricultural employers <5 employees, domestic services, churches) Commercial auto required for all business vehicles |
Wisconsin | Workers' comp required with 3+ employees (different requirements for farmers and businesses without regular employees) Commercial auto required for all business vehicles |
Wyoming | Workers' comp required with employees through monopolistic state fund (exemptions for federal employees, private duty nurses, independent contractors) Commercial auto required for all business vehicles |
State insurance requirements change frequently and vary by business type. This information is for general guidance only. Verify current requirements with your state's insurance department or licensed agent.
Different industries have their own business insurance coverage rules on top of what states require. Professional licensing boards and regulatory agencies set these additional requirements.
Health care providers, attorneys, financial advisors and real estate agents often need professional liability insurance to get or keep their licenses. Each state and profession has different rules, and high-risk specialties must carry more coverage.
Contractors need general liability insurance and surety bonds to get their licenses. Required coverage amounts often depend on project values, with bigger contracts requiring higher limits.
If you serve alcohol, you'll need liquor liability insurance to get your liquor license. Some states also require specific coverage for foodborne illness claims at restaurants and food service businesses.
Commercial transportation companies must meet federal insurance requirements under DOT regulations. Specialized industries, such as cannabis businesses and government contractors, face unique coverage rules set by their regulatory agencies.
Failing to maintain your industry's required business insurance coverage can result in license suspension, contract termination or regulatory penalties.
The right amount of business insurance coverage depends on your industry risks, business size and client requirements. Most small businesses start with $1 million general liability limits. This amount covers typical claims and meets most client contract requirements. Workers' compensation amounts are set by state law.
Consider $1 million liability coverage for commercial auto to match your general liability protection. The same goes for professional liability for consultants, contractors and service providers working with larger clients.
Your coverage needs increase with business assets, revenue and industry risk level. High-risk businesses like construction need higher limits than consulting firms.
Different industries face unique risks that require tailored business insurance coverage approaches. Understanding your industry's specific exposures helps you choose the right protection beyond basic requirements.
Construction & Contracting | Heavy equipment creates property damage risks, while job sites expose workers to injuries from falls, electrical hazards, and machinery accidents. Project delays from weather or supply issues can trigger contract disputes, and faulty workmanship may require expensive repairs years later. | General liability protects against third-party property damage and injuries, while professional liability covers design errors and project delays. Workers' compensation handles job site injuries, and commercial auto covers company vehicles. Tools and equipment coverage protects valuable machinery from theft or damage. |
Professional Services | Client relationships depend on expertise, making errors and omissions claims common when advice leads to financial losses. Data breaches expose sensitive client information, while missed deadlines can trigger contract penalties. Employment disputes may arise from hiring, firing, or workplace discrimination claims. | Professional liability insurance covers errors in advice or services that cause client financial harm. Cyber liability protects against data breaches and ransomware attacks. General liability handles slip-and-fall accidents in your office, while employment practices liability covers workplace discrimination and wrongful termination claims. |
Kitchen operations create fire and burn risks, while food preparation exposes businesses to foodborne illness claims. Customer slip-and-fall accidents are common in dining areas, and alcohol service adds liquor liability exposure. Equipment breakdowns can spoil inventory and force temporary closures. | General liability covers customer injuries and property damage, while product liability protects against foodborne illness claims. Liquor liability insurance is essential for establishments serving alcohol. Commercial property coverage protects kitchen equipment and inventory, and business interruption insurance covers lost income during forced closures. | |
Patient care creates malpractice exposure when treatments don't meet expected outcomes or result in complications. Strict privacy regulations make data breaches costly, while medical equipment failures can harm patients. Employment practices claims often arise from healthcare workplace stress and demanding schedules. | Medical malpractice insurance protects against patient care claims and covers legal defense costs. Cyber liability addresses HIPAA violations and patient data breaches. General liability covers non-medical accidents in your facility, while employment practices liability protects against workplace discrimination and harassment claims. | |
Customer-facing operations create slip-and-fall risks, while product defects can trigger liability claims. Theft of inventory and equipment affects cash flow, and data breaches expose customer payment information. Online sales add shipping damage and return disputes to traditional retail risks. | General liability covers customer injuries and accidents in your store, while product liability protects against defective merchandise claims. Commercial property insurance covers inventory and equipment theft, and cyber liability addresses payment data breaches. Business interruption coverage helps maintain cash flow during forced closures. | |
Vehicle accidents create significant liability exposure, especially when transporting goods or passengers. Cargo theft and damage affect client relationships, while driver injuries impact operations. DOT regulations and compliance violations can trigger fines and operational restrictions. | Commercial auto insurance with higher limits protects against vehicle accidents and covers fleet operations. Cargo insurance protects goods in transit from theft and damage. General liability covers non-vehicle business operations, while workers' compensation addresses driver injuries and loading accidents. | |
Business insurance coverage starts with state requirements like workers' compensation and commercial auto insurance. But real financial protection means choosing coverage that fits your business risks and adding specialized policies for complete financial security.
We’ve addressed frequently asked questions most small business owners have about business insurance coverage:
Business insurance covers you against unexpected costs from accidents, lawsuits, property damage, and business interruptions. Most small businesses start with a Business Owner's Policy (BOP), combining general liability, commercial property and business interruption insurance for comprehensive protection.
Your needs depend on industry, business size and operations. All businesses need general liability insurance. If you have employees, workers' compensation is required in most states. Businesses with vehicles need commercial auto coverage, while those handling customer data should consider cyber liability protection.
Costs vary based on industry, business size, location and coverage limits. Higher-risk industries like construction cost more than consulting firms. Factors affecting your premiums include claims history, employee count, annual revenue and the specific coverage limits you choose for protection.
Yes, several types are mandatory. Almost every state requires workers' compensation for businesses with employees. Commercial auto insurance is necessary, except in New Hampshire and Virginia, if you own vehicles. Professionals like real estate agents and lawyers need professional liability to maintain their licenses.
General liability covers property damage, third-party bodily injury, personal injury claims and legal defense costs. Professional liability is essential for consultants, architects and other professionals giving advice because it covers professional mistakes, errors, omissions and failure to deliver services.
Yes, especially if you handle customer data or use computers regularly. It covers data breaches, ransomware attacks, notification costs and legal fees. Professional services, health care, retail and food service businesses face significant cyber risks. Even small businesses are increasingly targeted by hackers.
A BOP combines general liability, commercial property and business interruption insurance into one affordable package. Most small businesses start with a BOP because it's more cost-effective than separate policies. You can add specialized coverage like cyber liability or professional liability as needed.
Restaurants need general liability for customer slip-and-fall accidents, product liability for foodborne illness claims and commercial property for kitchen equipment protection. Liquor liability is essential if you serve alcohol. Business interruption covers lost income during closures from equipment failures.
Construction companies face higher risks and need comprehensive coverage. General liability protects against property damage, professional liability covers design errors, workers' compensation handles job site injuries and commercial auto covers company vehicles. Tools and equipment coverage protects valuable machinery from theft.
Most small businesses start with $1 million general liability limits. This amount covers typical claims and meets most client contract requirements. High-risk businesses like construction need higher limits than consulting firms. Many commercial leases and client contracts require $1 million minimum coverage.
Almost every state requires workers' compensation for businesses with employees. Some states, like Georgia, only require it for three or more employees, while others have different thresholds. Each state sets its own rules, so check with your state's insurance department for specific requirements.
No, personal auto policies specifically exclude business vehicle use. You must carry commercial auto insurance except in New Hampshire and Virginia if your business owns vehicles. Commercial auto covers vehicle damage, bodily injury, and property damage from business-related accidents that personal policies won't cover.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.
