Insurance
Business insurance for founders: what is required, what can wait
General information on the law in Germany (as of August 2026), not legal advice. Other countries regulate this differently.
Almost nothing you already own carries over. A standard homeowners policy excludes business activity with no revenue threshold, a personal auto policy excludes commercial use, and group disability cover ends with the job. What the law actually requires is short: workers' compensation from your first employee in nearly every state, commercial auto for business vehicles, and whatever a licence or a contract obliges you to hold. Everything else is a judgement call, and the two worth making early are individual disability cover, because the premium only rises with age and diagnosis, and general or professional liability, because customers and landlords ask to see it. Cyber, umbrella and key person cover can wait until there is something behind them.
The policies you already have stop at the first invoice
Most advice on this subject opens with a list of twelve policies and a quote form. That is the wrong end. Before anything is bought, it is worth knowing what the contracts already sitting in a drawer stop doing on the day the business starts, because that is the only place where a founder is unprotected right now, today, without having done anything wrong.
The pattern is the same everywhere. Personal policies are written for personal life and carve business out of it by name. A mobile bike workshop in Portland is the clean example: the same tool, in the same hands, in the same garage, is covered on Sunday and excluded on Monday, because on Monday somebody paid for the repair.
What carries over, and what does not
Homeowners or renters policy
Stops at the business
The standard HO-3 excludes bodily injury and property damage arising out of a business, and excludes professional services outright. The exclusion has no revenue threshold. It applies from the first paid job, whether or not the money was ever deposited.
Home contents cover
Stops at the business
Business property in the home is typically capped around 2,500 dollars, and business inventory is often excluded entirely. That is enough for a laptop and nowhere near enough for a workshop, a camera kit or a stock of parts.
Personal auto policy
Stops at the business
Covers commuting, not commercial use. Deliveries, hauling tools to job sites and carrying goods for a fee sit outside it, and the insurer can deny the claim after the fact. A mobile workshop needs commercial auto from day one.
Health insurance
Carries over
It continues, but the employer subsidy does not. Marketplace cover under the ACA, a spouse's plan or COBRA are the usual routes. The federal penalty for going without ended in 2019, but California, Massachusetts, New Jersey, Rhode Island, Vermont and the District of Columbia run their own requirements.
Workers' compensation
Stops at the business
You had it as an employee. As an owner you generally do not, and in almost every state you must buy it the moment you hire your first person. Texas is the well-known exception for private employers, and even there going without exposes you to ordinary negligence suits.
Short and long term disability
Stops at the business
Group disability cover ends with the job. Only California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico run a state disability programme, and the benefit is modest. Everywhere else, an individual policy is the whole safety net.
Umbrella policy
Stops at the business
A personal umbrella sits on top of personal policies and inherits their exclusions. It does not extend over a business claim that the underlying homeowners or auto policy already refused.
One line carries over, and only because you keep paying for it yourself. Every red line is a cover you had last month and do not have this month.
General orientation, not insurance, legal or tax advice. Exclusions differ between carriers and states, and your own policy wording decides, not a summary.
Required, urgent, later
The honest version of the list every founder is handed. Long bars are the ones with a date attached or a claim behind them; short bars are the ones a checklist put there.
In the order that matters
Workers' compensation
Required on hiring
Mandatory from the first employee in almost every state, and in some from the first day of work. It is bought from a carrier or a state fund, not filed with an agency, which is why it slips past founders working through a registration checklist.
Commercial auto
Required if you drive
Your personal policy covers commuting, not commercial use. Every state that requires auto liability requires it for business vehicles too, and the denial for undisclosed business use arrives after the accident, not before.
Licence and contract requirements
Required, conditionally
Contractors, brokers, agents and health practitioners are usually required to carry cover as a condition of the licence. Landlords and corporate customers write minimum limits into the contract, commonly one million dollars per occurrence.
Health cover for yourself
Effectively unavoidable
No federal penalty since 2019, but a single hospital stay is the fastest route from a working business to a personal bankruptcy. Marketplace plans, a spouse's plan and professional associations are the three realistic routes for a solo founder.
General liability, or a BOP
Urgent
Not required by law, and required by almost everyone you will want to do business with. A business owner's policy bundles general liability with property cover and usually costs less than the two bought apart.
Individual disability cover
Urgent
Outside five states and Puerto Rico there is no public disability programme at all. For a one-person business the likeliest total loss is not a lawsuit, it is a back injury. The premium rises with every year and every diagnosis you wait through.
Professional liability (E&O)
Depends on the work
General liability covers the laptop you drop on a client's desk. It does not cover the advice that cost them money. Anyone who consults, designs, builds software or handles other people's money needs the second one, and general liability explicitly excludes it.
Cyber, umbrella, key person
Can wait
Worth buying once you hold customer data, card details or a contract that names them. Before that they consume money that validation would use better.
The bars illustrate urgency, they are not measured data. Long means it has a deadline or a claim behind it; short means it can wait without exposing you.
The policy almost nobody buys first, and should
Ask a founder what they insured first and the answer is usually equipment, or liability because a client asked for a certificate. Almost nobody says their own ability to work. Yet for a business with one person in it, that is the asset the whole thing rests on, and it is the one with no public replacement in most of the country.
Two numbers make the case. A destroyed laptop costs about 1,500 dollars and a week of annoyance. A back injury at 38 that ends the trade costs thirty years of earnings, and outside California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico there is no state programme that replaces any of it. Almost every founder insures the first one first.
The second argument is arithmetic rather than fear. The premium is priced from your age and your medical history on the day you apply. Every year of waiting raises it, and any diagnosis in between can turn into an exclusion or a refusal. This is the only cover on the list where postponing it makes it permanently worse, rather than simply later.
There is a public-safety-net trap alongside it. Leaving employment quietly ends the contribution record that some benefits depend on, and nobody writes to tell you. Check what you would actually receive before assuming there is a floor underneath you.
What you break, and what you get wrong
There are two entirely separate liability policies and their names do not make that obvious. General liability pays when you damage something or hurt someone: the shelf you knock over, the client who trips on your cable, the floor you scratch. Professional liability, sold as errors and omissions, pays when your work itself causes a financial loss: the advice that was wrong, the filing you missed, the calculation that was off by a factor of ten.
The trap is that general liability excludes professional services by name. A consultant, a designer, an accountant or a developer who buys general liability has bought cover for the one risk their work almost never produces, and none for the risk it produces constantly. The certificate looks the same to a client either way.
For trades and anything physical the priority runs the other way round: general liability first, professional liability rarely. The test is simple. If your worst plausible mistake leaves nothing broken and someone poorer, you need the second policy.
What each policy costs, and where it stops
The last column matters more than the first. Almost every gap founders discover in a claim sits in a policy they did buy, at the line where it ends.
| Policy | Typical cost | Pays for | Does not pay for |
|---|---|---|---|
| General liability | Median around 55 dollars a month, commonly 40 to 100, roughly 1,200 dollars a year | Bodily injury and property damage you cause, plus advertising injury. | Your own mistakes as a professional. That is a separate policy and this one excludes it by name. |
| Business owner's policy (BOP) | Average 147 dollars a month (1,767 a year); many small businesses pay nearer 80 dollars | General liability and commercial property in one contract, usually cheaper than buying both. | Workers' comp, commercial auto and professional liability. Those are added, not included. |
| Professional liability (E&O) | Average 78 dollars a month (931 a year), ranging from about 19 to 210 | Financial loss a client suffers from your advice, your design or your missed deadline. | Bodily injury or damaged property. That is general liability, in the other direction. |
| Workers' compensation | About 1.00 to 2.50 dollars per 100 dollars of payroll, median 70 to 130 dollars a month at typical small-business payrolls | Medical costs and lost wages for an injured employee, and it blocks most negligence suits from them. | The owner, in many states, unless you elect coverage. Contractors, unless they are misclassified. |
| Cyber liability | Average 129 dollars a month (1,552 a year), from around 400 to over 8,000 dollars | Breach response, notification costs, and liability for customer data you were holding. | The revenue you lose while rebuilding, unless business interruption is written in. |
Figures as of August 2026, typical rather than binding, and heavily dependent on trade, state, revenue and payroll. General orientation, not insurance, legal or tax advice.
Five mistakes that cost real money
None of them is carelessness. Each one comes from assuming that a policy covers the thing its name suggests it covers.
Assuming the homeowners policy stretches. It does not. The business exclusion in a standard HO-3 has no revenue threshold and no grace period, and the denial arrives after the claim, when nothing can be bought retroactively.
Buying general liability and calling it done. General liability covers what you break. It explicitly excludes what you get wrong. For anyone who advises, designs or builds, the second exposure is far larger than the first, and it needs its own policy.
Driving on a personal auto policy. Regular business use is a disclosed rating factor everywhere. Undisclosed, it is grounds for denial, and a mobile business is on the road every working day.
Treating disability cover as something for later. Outside five states there is no public programme at all, and for a one-person business a back injury ends the revenue and the income at the same moment. The premium is set by your age and your medical history, so waiting is the one decision that reliably makes it worse.
Buying every policy on a checklist at once. Cyber, umbrella and key person cover together run into four figures a year before the first customer has paid. Required first, then your own earning capacity, then liability, then the rest.
Frequently asked questions
What insurance is legally required for a small business?
Workers' compensation, from your first employee in almost every state and from the first day of work in some; Texas is the well-known exception for private employers. Commercial auto for any vehicle used in the business. Beyond that, requirements come from licences and contracts rather than from general law: contractors, brokers, agents and health practitioners usually must carry cover to hold a licence, and landlords and corporate customers write minimum limits into the agreement, commonly one million dollars per occurrence.
Does my homeowners policy cover my home-based business?
Almost certainly not in the way you need. A standard HO-3 excludes bodily injury and property damage arising out of a business, and excludes professional services outright. Business property in the home is usually capped around 2,500 dollars and business inventory is often excluded entirely. There is no revenue threshold below which the exclusion does not apply, so it takes effect from the first paid job. An endorsement, a business owner's policy or a standalone general liability policy fills the gap.
How much does small business insurance cost?
General liability runs at a median of about 55 dollars a month, commonly 40 to 100, or roughly 1,200 dollars a year. A business owner's policy bundling liability and property averages 147 dollars a month, though many small businesses pay nearer 80. Professional liability averages 78 dollars a month. Cyber liability averages 129. Workers' compensation runs about 1.00 to 2.50 dollars per 100 dollars of payroll. Most insurers give 5 to 15 percent off for bundling. Figures as of August 2026 and typical rather than binding.
What is the difference between general liability and professional liability?
General liability covers what you physically break: the client who trips over your cable, the shelf you knock into, the damage you do on someone else's premises. Professional liability, also called errors and omissions, covers financial loss caused by your work itself: the advice that was wrong, the deadline you missed, the design that failed. General liability policies exclude professional services by name, so the two do not overlap and a consultant who buys only the first is uninsured for the risk that actually applies to them.
Do I need disability insurance if I work for myself?
There is no public programme covering you in 44 states. Only California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico run state disability insurance, and the benefit is capped well below a working income. For a one-person business, an injury stops the revenue and the income in the same week, which makes an individual policy the closest thing to a safety net that exists. Premiums are set by your age and your medical history, so the cost of postponing it is paid later, permanently.
In what order should I buy business insurance?
Required first: workers' compensation when you hire, commercial auto if you drive for work, and whatever a licence or a signed contract obliges you to hold. Then your own earning capacity: health cover and individual disability. Then liability toward customers: general liability or a business owner's policy, plus professional liability if you advise, design or build. Cyber, umbrella and key person cover come last, once there is something behind them worth protecting.
Read next
Worth insuring at all?
Before the first premium: 4 to 12 AI experts assess market, financials and risks of your specific idea, in minutes, from € 5.99.
Assess my idea →