Is Business Insurance Required?

(Get your answers from an expert.)
Written by Ashley Surinak
Written by Ashley Surinak

Insurance doesn’t have to be boring. That’s why we hired Ashley Surinak to be our BA insurance writer. Ashley specializes in making mundane subjects hella-entertaining.

paul martin Reviewed by Paul Martin
paul martin
Reviewed by Paul Martin

Paul Martin is the Director of Education and Development for Myron Steves, one of the largest, most respected insurance wholesalers in the southern U.S.

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Generally speaking, is business insurance required?
Does the government require business insurance?
Does another entity require business insurance?
When don’t I need business insurance?
Expert(s) Found on this Page

Generally speaking, is business insurance required?

I’m starting a business and looking into all my costs. When it comes to insurance, I’m really not sure whether the benefits outweigh the costs. Is it actually optional for me, or am I required to purchase business insurance?

Like most insurance questions, the answer isn’t straightforward. My short answer is: It depends. Now let’s talk about what it depends on.

The biggest factor is who is holding you responsible. The government requires certain types of insurance depending on various factors in your business. In other cases, the person you’re doing business with may require insurance. And then there are other times when neither the government nor the person you’re doing business with requires insurance.

Let’s get into the specifics of each.

Does the government require business insurance?

I’m worried about staying compliant with the government. What do I need to know?

There are three types of insurance you need to concern yourself with when it comes to the government and what’s legally required:

  1. Workers' compensation insurance: If you operate a business in any state other than Texas, you’re legally required to purchase workers' compensation insurance if you have employees. Even in Texas, where coverage is voluntary, the laws are essentially written so that you need to purchase insurance.
  2. Healthcare: Because of the Affordable Care Act, you’re also required – for the time being – to purchase health insurance if you have employees.
  3. Qualifying employee benefits: If you provide qualifying employee benefits, you need fiduciary liability insurance. This just means that you’re responsible for managing the benefits of your employees. Qualifying benefits include things like health insurance and disability insurance.

These are the big areas you need to be aware of when it comes to government-required business insurance. Otherwise, you’re in the clear to make your own decisions about what kind of coverage you want.

Does another entity require business insurance?

You also mentioned that I might be contractually required to purchase business insurance. What do you mean by that?

The business relationships you enter into can also require business insurance. Let’s say you're you’re a subcontractor doing work for a general contractor. The general contractor will generally require in the contract you sign with them that you have business insurance. So by virtue of entering into that contract, you’re required to purchase business insurance (even if you otherwise wouldn’t need it).

This is standard when you enter into contracts, so it’s expected. Just be sure to read the fine print before you sign and contact your independent insurance agent to make sure you have the right coverage for the job.

When don't I need business insurance?

Now I know that the government or a business partner might require that I purchase business insurance. So my new question is this: When don’t I need business insurance?

This is one of the easier questions, because if you aren’t required to purchase it because of the law or a contract, it’s entirely up to you whether you want to purchase business insurance. If you’re a 19-year-old who is mowing a couple of  neighbors’ lawns for extra money, the cost of business insurance probably isn't worth the risk.

Keep in mind that even if you’re running a solo business with no employees, the risks could outweigh the benefits of forgoing business insurance. After all, you want to be sure you’re covered should anything happen. It’s all about considering the scope of your risks and whether business insurance makes sense. And when you want to be sure your thoughts on this are correct, the best thing you can do is contact your insurance agent.

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