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What Insurance Is Needed for a Small Business?

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Small business insurance coverage can be a smart way to protect your business. Yet some types of insurance aren’t optional — many states have small business insurance requirements that your company will need to meet. If you have employees, there’s small business health insurance requirements to be aware of, too.

Worker’s compensation insurance

When employees are injured or fall ill on the job, worker’s compensation insurance can help provide medical benefits and protect out-of-work employees against wage losses. The vast majority of states have laws that require employers to carry worker’s compensation insurance.

At present, Texas is the only state without a worker’s compensation coverage mandate. Georgia requires coverage for LLCs and corporations with three or more employees — but there are a few exceptions to this rule (these include railroad carriers, farm laborers, domestic servants and U.S. government agencies).

Unemployment insurance

Unemployment insurance provides benefits to employees who lose their jobs — but only those who do so at no fault of their own. The federal government requires businesses to carry unemployment insurance; however, it’s the states who manage unemployment programs for their residents.

Disability insurance

Disability insurance can provide partial wage replacement to your employees in the event they are out of work due to illness or injury that occurs outside of the workplace. At present, there are no laws that require employers to purchase long-term disability coverage. However, business owners in several states — California, Hawaii, New Jersey, New York and Rhode Island — must provide short-term disability coverage for their employees.

Additional types of business insurance

There are several other types of insurance coverage you may want to consider for your business. Some policies may be required by your state. Others, while not mandated, may still be wise to have depending on the type of industry in which your business operates.

Commercial property insurance

Whether your business leases or owns a building, commercial property insurance is worth considering. In addition to providing protection for the physical location of your company, this type of coverage can also protect you in the event of damage to equipment, tools, furniture and inventory.

Commercial auto insurance

Business vehicles are generally exempt from personal auto insurance requirements. However, if you or your employees drive company vehicles, you’ll want to purchase insurance coverage — perhaps both liability and comprehensive.

Liability insurance 

There are two types of liability insurance for businesses — professional liability and general liability. Professional liability insurance protects you in the event you’re sued for malpractice, negligence or errors. This coverage is commonly called errors and omissions insurance, known as E & O. General liability insurance, meanwhile, covers your business against claims of injuries on your business property.

Your state might require you to carry liability insurance depending on the type of business you operate. Accountants and dentists, for example, may face special small business insurance requirements with regard to liability coverage. And even though most states may not require general liability insurance, you may still need to prove you have this type of coverage to secure business permits, property leases, professional accreditation and even some business loans.

Business interruption service

Business interruption insurance — also called business income insurance — can help you replace lost income if your business has to shut down on a temporary basis. Covered causes of business interruption can vary per policy. However, they may include events such as fire, theft or other types of unforeseen property damage.

Business owner’s policy

A business owner’s insurance policy (BOP) is a type of insurance coverage that can group general liability and property insurance into a single policy. A BOP policy has the ability to save you money and simplify the process of securing adequate coverage for your company.

Small business health insurance requirements

Health insurance is technically not a type of business insurance — this type of policy helps to cover medical expenses for your employees instead. Yet depending on the size of your business, it’s a cost that you may have to add to your monthly expenses.

According to the Affordable Care Act (ACA), also known as Obamacare, small business insurance requirements vary for businesses with fewer than 50 employees, and those with 50 or more.

Fewer than 50 employees

Under the ACA, businesses with fewer than 50 employees aren’t subject to small business health insurance requirements. Yet even without a mandate to require health care coverage to your employees, there may still be benefits to doing so.

Businesses of this size have the option to use the Small Business Health Options Program Marketplace (SHOP) to purchase insurance coverage for employees. Those that opt to pay for at least 50 percent of premium costs for their employees may be eligible for the small business health care tax credit.

More than 50 employees

In the event your company has more than 50 employees, your small business health insurance requirements will be different. The ACA imposes a steep penalty for companies of this size that fail to provide their staff with health care insurance. In 2021, the penalty is as much as $4,060 per employee.

Small business insurance requirements FAQs

What are the basic insurance requirements for small businesses? 

Whether you’re starting a new business or running an existing company, you’ll need to pay for worker’s compensation and unemployment insurance. Depending on your state and industry, you may have to purchase other types of coverage as well.

Are small businesses required to have insurance? 

In general, all small businesses (even startups) need at least basic unemployment insurance and worker’s compensation coverage. However, other types of business insurance may also be a good idea.

Do you need business insurance for an LLC? 

Being a Limited Liability Company (LLC) does not exclude your business from the need for state and federally required business insurance coverage.

Kurt Adams Kurt Adams

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