Starting A Business

Starting A Business: Current US Insurance Requirements

Analyzing When You Need Business Insurance In 2021

If you are pondering how best to start a business in today’s competitive climate, one of the first things you’ll have to consider is whether you will need business insurance or not.

This is a crucial step, as you will need to ensure that you accurately consider all of your business’s initial costs- diminishing the risk of any unexpected costs significantly handicapping your business’s future growth and profitability.

As we will further explore below, whether your business will require business insurance or not will be highly determined by your: industry, size, and state of operation..

State Laws & Insurance Requirements

Even though the vast majority of commercial insurance coverage options remain optional, your business’s state’s laws may require you to purchase certain types of coverage, these include:

  • Commercial Auto Insurance
  • Workers’ Compensation Insurance
  • Professional Liability Insurance
  • Liquor Liability Insurance

Let’s have a look at these in more detail.

Commercial Auto Insurance

Similarly to personal vehicle insurance, any vehicle which is owned by your business must be covered by commercial auto insurance, which covers any damages that may arise if one of your employees happens to get injured (or injure another individual) in a vehicular accident.

Having a relatively large scope of application, commercial auto insurance coverage can cover: property damage, injuries, and legal fees.

Business owners can additionally purchase Hired and Non-Owned Auto insurance (HNOA) in events where their employees rely on personally owned vehicles during business hours.

Workers’ Compensation Insurance

Even though almost every state (aside from Texas) requires business owners to purchase workers’ compensation insurance, this is usually dependent on the number of persons that a business employs.

For example, any business which operates in the state of Georgia only needs to purchase workers’ compensation insurance when they ‘’regularly’’ employ at least three individuals.

Professional Liability Insurance

Professional liability insurance covers a business from damage that may arise as a direct result of a lawsuit where that business is held to be liable- as a result of negligent actions, mistakes, or oversights, that caused the claimant party (customer or client) financial loss or physical damage.

Professional liability insurance is also commonly referred to as Errors and Omissions Insurance (E&O).

Professional Liability Insurance

Liquor liability insurance

Liquor liability insurance is often legally required in order to attain a liquor license (especially for businesses within the Hospitality Sector- such as restaurants, hotels, and bars).

This policy enables business owners to remain financially protected if their business is held legally liable (by a court) for property damage or personal injuries that arise as a direct consequence of an overserved person.

Other Situations That May Require Business Insurance

Above we have delineated the most common examples of where businesses may be legally required to purchase business insurance.

Having said that, it should be noted that there are several situations where- even though no legal prerequisite exists, pragmatic reality may (to a certain extent) compel business owners to purchase business insurance.

For example, commercial insurance may be required when business owners want to either: get licensed, attract certain clients, or sign a commercial property lease. This means that business insurance can commonly allow business owners to:

  • Apply for licenses- This can vary depending on the industry in question, but generally speaking the vast majority of U.S licensing bodies do require an active insurance policy in order to license businesses.
  • Attract big client contracts- This is especially the case where certain clients will only agree to work with your company if you have liability insurance- as they will not want to be held legally liable for any potential mistake that could be made in the future.
  • Sign a lease- When you are renting a commercial property, this is commonly an ‘’unofficial’’ requirement that is imposed by a plethora of different landlords.

Final Words

So as we have seen above, the current climate (2021) can give rise to a variety of different situations where commercial business insurance is legally (or pragmatically) a requirement for business owners.

As this will be highly dependent on your business’s size and industry, you should make sure that you adequately research all of the requirements that you will need to follow before officially launching your company.

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