Is Business Insurance Required by Law?

Here’s what you should know:

  • Some types of coverage are required by law in some states.
  • These include workers’ compensation and auto liability.
  • Your mortgage holder or landlord may also require it.
  • You may still be exposed to risk if you only have the minimum required coverage.

Q: Question I know how important it is to control costs when starting a business. Even so, I realize there are some expenses that come with the territory. What about insurance — am I required to buy it?

Farmers Insurance® agent Art Rusak of Chicago, Illinois, discusses the requirements for business coverage.

A: Answer Some types of coverage are required for businesses — others are up to you. If you have employees, the law in most states says you must have workers’ compensation insurance. This covers the cost of work-related injuries, including medical treatment and time off work. Auto liability coverage is also required on vehicles owned or used by the company. With a business auto policy, liability coverage can optionally extend to your employees’ personal vehicles when used for business purposes.

Although property insurance isn’t required by law, virtually all lenders require it on buildings as a condition of obtaining a mortgage. This covers your lender’s interest in the property (the amount you owe them) in case it’s destroyed. Many landlords require their tenants to have some level of insurance — this will be spelled out in your lease.

Even if your business isn’t required to have insurance, there’s still reason to get coverage. A single accident or natural event could jeopardize your livelihood.


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