Is Business Insurance Required by Law?
If you’re like most business owners in the US, you probably don’t fancy the idea of business insurance. And it’s not because you don’t know the benefits—you do. But those premium fees can seem a bit too much to part with every month, especially when you consider the impact they’ll have on your income.
So, you’ll probably take your chances with a lawsuit or an earthquake. Except refusing to provide protection for your business through insurance doesn’t just expose you to the damaging financial losses that come with natural disasters and legal battles—it also puts you at risk of breaking the law.
In America, depending on your state and industry, certain business insurance policies are required by law. You could face fines and possible jail time in some states if you don’t have the required insurance coverage.
To help you stay compliant with the regulations, we explore the insurance laws in America and the types of insurance policies businesses are mandated to have in this blog post.
Which Insurance Policies are Mandatory in the US?
Insurance laws in the US differ, depending on the state. Some states require businesses to have specific policies while others do not. The requirements can also depend on your industry or occupation. That said, here are some insurance policies you may need to have if you do business in America:
- Workers’ Compensation Insurance
Workers’ compensation insurance is a legal necessity for businesses across all states in the US, except Texas. It offers financial cover for the medical bills, lost wages, and disabilities of employees who have suffered work-related injuries.
In America, workers’ compensation insurance is a no-fault policy. In other words, employers must pay the benefits regardless of who is responsible for the injury. In return, their staff cannot sue for negligence.
That said, the application of the laws varies based on the state. For instance, some states don’t offer coverage for all employees, with domestic workers and volunteers often excluded.
The penalties for violation can also be quite severe. In California, you could pay a fine up to $100,000. Elsewhere, employers in Arizona can face a Class 6 Felony with jail time of up to two years.
- Professional Liability Insurance
Professional liability insurance—otherwise known as errors and omissions insurance—offers protection against lawsuits from customers due to errors made while businesses execute their professional duties.
It’s not a mandatory requirement for all businesses. Instead, US states only require specific professions to have them. In many instances, this insurance policy is necessary to receive a professional license. Federal laws also require businesses that are under a federal government contract to carry this insurance coverage.
Some occupations that typically need to possess professional liability insurance in America include:
- Attorneys
- Real estate agents
- Medical doctors
- Insurance agents
- Commercial Auto Insurance
Company vehicles and other automobiles used for business purposes are required by law across US states to have commercial auto insurance protection.
This insurance policy covers the medical bills of the passengers and driver of the vehicle if it’s involved in an accident. It can also handle the damage costs for the automobile and any other property involved in the crash.
Each state has a minimum coverage limit for this policy. The limit depends on whether it is a passenger or cargo vehicle. Coverage requirements can also differ based on the number of passengers and the type or weight of the cargo.
For instance, Arkansas state laws have a minimum liability limit of 25/50/25 for vehicles transporting passengers. That is, the minimum coverage is $25,000 for injuries per person, $50,000 for total injuries per accident, and $25,000 for damage.
In contrast, automobiles with hazardous cargo can have a limit of up to $5 million, depending on the material.
Final Thoughts
Business insurance doesn’t just protect your company from risks. In the US, it also keeps you compliant with the law to avoid penalties like fines and a possible jail term. That said, business insurance laws vary by state. It’s critical to find out what applies in your state and adhere to the regulations to prevent a run-in with the authorities.
