What Insurance Do I Need to Start a Business?

Starting a business is exciting, but it also exposes entrepreneurs to risks that can quickly undermine even the best-laid plans. Before diving into operations, many new founders wonder how do I register my business name, since proper registration is the foundation for all future legal and financial protection. Once the business entity is established, another crucial step is understanding what insurance do I need to start a business — one of the first questions that arises after incorporation and licensing. Entrepreneurs also commonly ask, “Do I need insurance to start a business?” since requirements vary widely depending on the size, sector, and location of the business.

Working with a startup business formation consultant can help you navigate these complexities, from choosing the right structure to identifying the coverage types best suited for your venture. There is no single answer that applies to everyone, but professional guidance ensures you meet compliance obligations while minimizing exposure to risk.

Finally, for those planning to expand through partnerships or shared branding, understanding what is a franchise agreement becomes equally important. Each legal and insurance decision plays a role in protecting your investment and ensuring that your business can operate smoothly, even in the face of unforeseen challenges. Insurance, in this sense, becomes not just a safeguard but a strategic asset that guarantees stability, continuity, and peace of mind.

Why Business Insurance Matters

Business insurance is not simply an administrative requirement, but rather serves three fundamental roles:

• Protection of assets and people: Insurance protects assets such as real estate, equipment, intellectual property, and inventory. It also protects company employees’ health and safety, ensuring that critical resources remain safeguarded.
• Legal compliance: Many jurisdictions require minimum insurance levels before companies can begin operating, making insurance mandatory by law.
• Peace of mind: The knowledge that unforeseen events, from accidents to natural disasters, will not jeopardize the organization’s survival allows the business owner to focus solely on growth and operate with greater peace of mind.

Simply put, business insurance is often mandatory in certain jurisdictions, and it is always highly recommended to protect property and people and to operate with peace of mind.

General Liability Insurance

All companies, regardless of their sector, rely on General Liability Insurance. This is a commercial insurance policy designed to protect the company against any third-party claims. The policy covers not only material damage, but also personal injury and communication and marketing liability.

Specifically, it can cover physical damage suffered by an employee while performing their duties, damage to third-party property caused by the company’s activities, and also protects against accusations of defamation or misleading advertising.

Professional Liability (Errors & Omissions) Insurance

When providing services such as consultancy, assistance, or professional services, professional civil liability insurance is of fundamental importance.

Professional Liability Insurance is also known as Errors & Omissions (E&O) Insurance.

Sectors such as healthcare, legal, accounting, and financial consultancy are particularly exposed to this type of risk. Although requirements differ from one country to another, clients and regulators often expect professionals or even an LLC to take out this coverage before entering into contracts.

Property Insurance 

Property insurance is essential for protecting a company’s tangible assets, such as offices, warehouses, equipment, machinery, and commercial property in general. This ensures that any unforeseen events do not paralyze the firm’s activities, while protecting both the company and its employees.

For example, in the event of fire, earthquake (natural disasters in general), theft, or vandalism, the firm will be covered for damages and will avoid suffering serious economic and financial losses.

This type of insurance does not only concern property owners, but also tenants, as some lease agreements require property insurance.

Workers’ Compensation Insurance

About workers’ compensation insurance, it is essential to note that in many jurisdictions (including the US),  it is required by law. This is because it guarantees the safety and protection of employees in the event of an accident.

In some systems, it is mandatory for all companies, regardless of their size. In others, however, there are minimum thresholds, such as a certain minimum number of employees.

This insurance covers any medical expenses and loss of wages caused by an accident at work.

Business Interruption Insurance

Business interruption insurance (as the name suggests) is designed to protect organizations from the interruption of their operations caused by accidents or natural disasters.

It obviously covers all expenses (rent, salaries, and miscellaneous expenses) resulting from a natural disaster or accident. The aim is to ensure financial continuity until operations resume.

This insurance is particularly important for companies that have physical stores or premises such as bars, restaurants, retail stores, manufacturing facilities, etc.

Industry-Specific Insurance Requirements

Some sectors may be riskier than others, presenting specific critical issues not covered by standard insurance policies. For example:

• Healthcare sector: Here, the most common risk is personal negligence, and professional liability insurance protects clinics and hospitals from this unforeseen event. It is often compulsory insurance by law.
• Construction sector: In this case, accidents at work are much more frequent, given the nature of the activity.
• Transport and Logistics: Some policies cover the risk of theft, damage, and loss of goods during transport. There may also be insurance against accidents or damage to the vehicle fleets used.

In every case, the right coverage must be assessed against the organization’s activities and jurisdictional rules.

Insurance for Online and Small Businesses

Digital companies often believe they need less insurance coverage. In reality, online activities are exposed to specific risks. Cybersecurity insurance protects against data breaches, hacking, and customer information loss.

When evaluating what insurance do I need to start a small business​, business owners should start with liability and asset coverage, then evaluate whether cyber, professional, or product liability coverage is needed. 

Global Considerations for Business Insurance

Corporate insurance laws vary greatly from jurisdiction to jurisdiction. Some areas require extensive mandatory coverage (for example, health insurance and accidents at work), while others are more flexible, relegating greater autonomy to commercial businesses. 

Beyond these aspects, organizations need to keep up with requests, and it is essential to respect local rules on worker protection, workplace safety, and civil liability.

For international companies, complexity increases, and therefore, it is necessary to count on expert and professional consultants in order to reduce risks and guarantee operational continuity. 

FAQs

What insurance do I need to start a business?

Although it varies from jurisdiction to jurisdiction, most businesses need at least three basic types of coverage: General liability insurance to protect against personal injury, property damage, and advertising claims; Workers’ compensation insurance, which is mandatory in many countries if you hire employees; and Industry-specific policies that vary depending on the sector of activity.

What insurance do I need to start a small business?

Small businesses need general liability insurance (the basis of any business), property insurance for offices, equipment, and warehouses, and workers’ compensation insurance if they have employees; in the case of an LLC, these policies are equally essential to ensure compliance and protection.

Do I need insurance to start a business?

Very often, yes, as insurance coverage is required by law in many areas. Even when it is not mandatory, however, it is always recommended.

What is the most important insurance for new businesses?

The fundamental policy for every business is General Liability Insurance, as it covers all the most common risks.

How much does business insurance cost?

The cost varies considerably and depends on several factors. Sector, location, and firm size are the three critical points. Some sectors, for example, have greater critical issues and therefore higher costs, and local insurance rates can differ widely. In addition, laws and risks vary from country to country, making insurance more expensive in some countries.

Can I operate internationally with one insurance policy?

Some global companies offer policies covering multiple countries. However, local policies are often also needed to comply with the regulatory requirements of each jurisdiction. The most effective option is to combine international coverage with local advice to ensure compliance and effective protection.

References

LegalZoom. (2023). Business Insurance: When You Need It and When You Don’t.

https://www.legalzoom.com/articles/business-insurance-when-you-need-it-and-when-you-dont

NerdWallet. (2023). Types of Business Insurance.

https://www.nerdwallet.com/article/small-business/types-of-business-insurance

U.S. Chamber of Commerce. (2023). Types of Insurance Your Small Business May Need.

https://www.uschamber.com/co/start/strategy/types-of-insurance-your-small-business-may-need