What Insurance Does a Small Business Need: The Coverage to Buy First and What Can Wait

A small business does not have one universal insurance package. Start with what your state, licensing board, lease, client contract or lender requires, because those requirements come before everything else. Workers' compensation applies when you have employees (opens in a new tab), and business vehicles need commercial auto coverage. After the required items, the common coverages are general liability for third-party injury and property damage, commercial property for business property, professional liability for service errors, and a business owner's policy (BOP) that bundles core property and liability coverage. Home-based businesses, freelancers and LLCs still have to look at what they actually do, and a licensed insurance producer can help you match coverage to that.

What insurance does a small business need first?

The order that works is insurance required by law first, then your other business risks (opens in a new tab), according to the U.S. Small Business Administration (SBA). That sequence is a way to decide what to buy first and what can wait a little longer.

1. Legal requirements. Workers' compensation for employees, commercial auto where business vehicles are used, and any insurance or bond a licensing board demands.
2. Contract requirements. What your lease, client contracts or lender's loan documents say.
3. Your own risks. Customers who visit, advice you give, property you own, equipment you carry, data you store and income you would lose in a shutdown.

Where an item falls depends on your business, and the agent you call will ask about your people, vehicles, property and contracts.

What insurance does the law require?

Requirements vary by state, by how workers are classified, by industry, by location, by vehicles and by contract. Workers' compensation shows the variation clearly:

• Connecticut: Conn. Gen. Stat. § 31-284 (opens in a new tab) requires an employer to provide workers' compensation coverage or qualify under the alternative the statute permits, and the same chapter sets penalties for noncompliance.
• Massachusetts: Any person or business that employs workers must buy workers' compensation insurance, subject to stated exceptions, according to the Department of Industrial Accidents (opens in a new tab). Compliance can also affect licenses and permits, per the department's affirmation of compliance (opens in a new tab).
• New York: Virtually all employers must cover their employees, according to the Workers' Compensation Board (opens in a new tab).
• Texas: Most private employers are not required to carry it, per the Texas Department of Insurance (opens in a new tab), though government contracts may require it, and employers that skip coverage lose important legal protections and must meet notice requirements.

Commercial auto financial responsibility and professional licensing are separate checks. A business that operates in more than one state needs to check each one.

What coverage is commonly discussed after the legal requirements?

Common types of business insurance (opens in a new tab) include:

• General liability: bodily injury, property damage, medical expenses, libel, slander, defense costs, settlements and judgments.
• Product liability: injury or bodily harm from a defective product.
• Professional liability: malpractice, errors and negligence arising from your services.
• Commercial property: business property damaged by covered events such as fire, smoke, wind, hail, civil disobedience and vandalism.
• Home-based business insurance: an endorsement or rider that can cover a small amount of business equipment and third-party liability.
• Business owner's policy: a package combining typical coverages.

Workers' compensation, commercial auto, cyber and business interruption round out the usual conversation. Ask your agent which of these apply to your business now and which apply once you add employees, vehicles, customer data or equipment that travels.

What does general liability cover?

General liability covers claims from outsiders: a customer hurt on your premises, damage you cause to someone else's property, medical expenses, and claims of libel or slander, plus defense costs, settlements and judgments, per the SBA (opens in a new tab). It addresses injury and damage to other people. It does not cover mistakes in your professional work, and it does not cover your employees' work injuries. Ask the agent which exclusions sit on the policy you are quoted.

What does professional liability cover?

Professional liability, also called errors and omissions insurance, covers malpractice, errors and negligence that arise from professional services (opens in a new tab). A service business faces a client's financial loss and not only a physical injury. General liability is not a substitute for it, and each covers a different kind of claim.

What does a BOP include?

A BOP commonly bundles commercial property coverage for buildings, office space, equipment and inventory; general liability coverage for third-party injury, property damage and related legal expenses; and business interruption coverage for lost revenue and continuing expenses after a covered event shuts the business down, according to Triple-I (opens in a new tab). BOPs are normally aimed at businesses with 100 employees or fewer and revenue up to about $5 million.

A BOP does not cover every business risk, and its limits are usually lower than a standalone policy's. Professional liability, workers' compensation, business-owned vehicles and cyber risk can require separate policies or endorsements. Business interruption coverage depends on a covered event and physical property damage, and it often excludes flooding, earthquakes, mudslides and losses unrelated to covered property damage, per the NAIC (opens in a new tab). Ask whether your BOP is available for your industry and what it leaves out.

What changes for a home-based, freelance or LLC business?

A homeowners or renters policy is rarely adequate for a home-based business. Business property limits can be restricted, business-related liability can be excluded, and standard policies do not include professional liability (opens in a new tab), per the NAIC. A homeowners rider may give limited protection for business equipment and third-party injuries, according to the SBA, and the NAIC lists a BOP, general liability, business property and business interruption as topics to raise with an agent. Freelancers and independent contractors should describe their services, client work, equipment, data, subcontractors, vehicles and contract requirements, and should not assume a personal policy reaches business activity.

Forming an LLC does not create an insurance policy. An LLC or corporation can protect personal property from some lawsuits, and that protection has limits (opens in a new tab), so insurance addresses business risks and obligations separately. A sole proprietor does not receive automatic business insurance from the business form either. Whether coverage is legally required depends on state law, employees, vehicles, licensing and contracts.

What might a landlord, client, lender or licensing board require?

The contract or lease controls the requirement, and each of these sources can ask for something different:

• Landlord: a commercial lease can require insurance, a certificate of insurance or additional insured status for the landlord.
• Client: a contract can require general liability, professional liability, workers' compensation, commercial auto or other coverage, and it sets the limits, policy wording, cancellation notice and additional-insured terms.
• Lender: a loan can require insurance on financed property or collateral, and requirements vary by lender and loan document.
• Licensing board or public contracting agency: some require insurance or a bond as a condition of a license or contract.

A certificate of insurance summarizes stated coverage at a point in time. It does not amend the policy or replace the policy wording, so send the contract to your agent and ask whether the policy meets its exact wording.

What gaps should you raise with an agent?

Go through these gaps with the agent one by one:

• Professional errors. General liability is not a substitute for professional liability.
• Equipment away from the premises. Commercial property may not address equipment you regularly carry or use elsewhere, and inland marine exposure is measured by property value and revenue, per IRMI (opens in a new tab).
• Cyber incidents. Cyber risk is a separate coverage to ask about, per Triple-I (opens in a new tab).
• Business interruption. Coverage depends on covered physical damage.
• Business-owned vehicles. A business-owned vehicle needs coverage beyond personal auto insurance, per the NAIC (opens in a new tab).
• Flood and sewer backup. These are separate risks, per Triple-I.
• Employment practices. Employee practices liability is separate from core BOP coverage, per Triple-I.
• Supply-chain interruption. Contingent business interruption is an optional coverage that can require property damage, per the NAIC.
• Pollution, terrorism and other specialized risks. Coverage depends on the business and the policy wording.

What does insurance cost, as context?

Insureon's February 6, 2026 figures (opens in a new tab) are median monthly costs from policies bought by 100,000 of its own customers: general liability $45, BOP $83, professional liability $88, workers' compensation $54, commercial umbrella $86, cyber $129 and commercial property $108. They are medians for one company's customers, not market prices. Industry, location, business size, policy limits, payroll, revenue and operations all move cost, so these numbers are background and not an estimate for your business.

What should you bring to the conversation?

Bring the legal business name and entity type; a description of every product and service; revenue and expected revenue; payroll, employee count and duties; contractor, subcontractor, leased-worker and volunteer information; locations and leased premises; values for buildings, equipment, furniture and inventory; equipment used off site; vehicle ownership, types, drivers and business use; data you collect and payment systems; client contracts, leases, lender terms and licensing requirements; existing certificates and policies; prior claims; and current and planned states of operation. Revenue, payroll, square footage, employee count, vehicle use, building value, inventory value, project value, data volume and disaster-recovery plans are common exposure inputs, per IRMI (opens in a new tab).

Frequently asked questions

Does a sole proprietor with no employees need workers' compensation?

It depends on the state. New York's Workers' Compensation Board gives one example: a sole proprietor without employees is not required to carry workers' compensation, while one with employees must cover them (opens in a new tab). Other states can differ, so check the state where you operate.

How much does a $1,000,000 liability policy cost?

No single price attaches to that limit. Insureon's $45 monthly median for general liability is context for its own customers and does not name a limit. Ask an agent to quote the limit your lease or contract names, with the deductible and exclusions shown next to the price.

Does business interruption cover a closure with no physical damage?

Coverage depends on a covered event and physical property damage, per the NAIC (opens in a new tab). A closure unrelated to covered property damage is commonly excluded, so ask the agent how the policy defines the trigger and whether contingent business interruption is available.

Where can a small business owner get free help?

The SBA offers free counseling through its local district offices and partner organizations, per the SBA (opens in a new tab). The SBA Connecticut District Office, for example, provides counseling, funding-program help, contracting assistance and connections to partner organizations (opens in a new tab) across that state. For one state's insurance rules in detail, see Riskado's guide to Connecticut small business insurance.

Your next step

Take your contracts, payroll, revenue, vehicles and equipment to a licensed insurance agency; Riskado's directory lists agencies across the US, state by state. Each state licenses the people who sell insurance there, and your state insurance department (opens in a new tab) is where you check a license before you share business details. In Connecticut, for example, anyone who sells, solicits or negotiates insurance must hold the matching license and, where applicable, an insurer appointment (opens in a new tab), checkable through the Connecticut insurance license lookup (opens in a new tab).