NEXT Insurance surveyed 500 small-business owners in February 2023 and found a gap that had nothing to do with revenue or industry: 35% of women business owners carried no insurance coverage at all, against 25% of men. By the time NEXT ran its follow-up survey in 2025, the overall numbers had improved — 92% of small businesses now carry some coverage — but 69% of owners still said they find insurance confusing, struggling to understand coverage, limits, and policies well enough to know what they actually need.
That confusion is a reasonable response to a genuinely confusing product. But the gap it leaves is a real one, and for most founders it closes faster than the stories about expensive policies and six-figure lawsuits suggest.
An LLC protects less than it sounds like it does
The instinct, once you’ve formed an LLC, is to assume the liability question is handled. It isn’t, and the SBA’s own guidance says so without hedging: while an LLC limits your personal exposure, “that protection has limits.” A lawsuit against your business doesn’t go away because you formed an LLC — it just stops reaching into your personal bank account. The business’s own money, and its ability to keep operating while a claim is being resolved, is a separate problem, and it’s the one insurance is built to solve.
That gap between what a legal structure covers and what it actually leaves exposed is the same pattern that shows up when founders assume an LLC or a domain registration already secured their trademark rights — it hasn’t, and the USPTO says so just as plainly.
What’s actually required by law
The federal government requires three things of every business with employees, per the SBA: workers’ compensation, unemployment insurance, and disability insurance. The first one is where the real complexity lives, because it isn’t federal — it’s set state by state, and the thresholds genuinely differ.
Texas and South Dakota don’t require workers’ comp at all for private employers; in Texas it only becomes mandatory for government contractors. In most other states, the obligation starts with your very first employee. A smaller group of states sets the threshold higher: Alabama, Mississippi, Missouri, and Tennessee require it only once a business reaches five employees, while Arkansas, Georgia, North Carolina, and Virginia set it at three, and Florida and South Carolina at four — several of those states lower the bar to one employee specifically for construction-classified work. The rule only moves in one direction once you’re hiring: the moment covered in getting your first employee’s paperwork in order is the same moment workers’ comp, where your state requires it, stops being optional. Confirm the exact number with your own state’s labor department before your first hire’s start date — it’s one of the few items on a founder’s list with a real legal deadline attached, not just a best practice.
What’s optional, but exists for a reason
Beyond what the law requires, the SBA’s own guidance recommends a short list of coverage built around where small businesses actually get sued or lose money:
General liability insurance covers bodily injury and property damage your business causes to someone else — a client injured in your studio, a contractor’s work that damages a client’s property. It’s the broadest, most commonly carried policy, and per NEXT’s 2025 survey, 62% of small businesses already have it.
Professional liability insurance, also called errors and omissions (E&O) coverage, is built for service businesses specifically: it covers claims that your advice or your work itself caused the client harm — a missed deadline, an error in deliverables, guidance a client relied on that turned out wrong. A business that sells a product carries a parallel version of this built for defects: product liability insurance.
Commercial property insurance protects physical assets — equipment, inventory, a leased space — against fire, theft, and weather. A home-based business rider adds a version of that same protection onto an existing homeowner’s policy, for the founders running the business out of a spare room rather than a separate office. And a business owner’s policy (BOP) bundles general liability and commercial property together, which is usually cheaper than buying each separately and is where most small businesses that bother to shop around end up.
What it actually costs
The number that tends to stop founders from even getting a quote is almost always higher than reality. Insureon’s own customer data puts the average general liability premium at $45 a month, with full annual policies typically landing between $250 and $3,000 depending on industry, location, claims history, and the coverage limits chosen — and 22% of Insureon’s customers pay under $30 a month. Most of those customers choose a policy with a $1 million per-occurrence limit and a $2 million aggregate limit, which is the standard a lot of client contracts require before they’ll even sign.
None of that is nothing. But set against the cost of a single uncovered claim — the reason 35% of women business owners are currently exposed to one — it’s a smaller number than the confusion NEXT’s survey documented would suggest.
Where to actually start
Get quotes from at least two sources before picking anything: a traditional broker who can explain the fine print in plain language, and a digital-first insurer (NEXT and Insureon both operate this way) that quotes multiple carriers’ policies against each other in one pass. Bring your industry, your revenue, whether you have or plan to have employees, and whether you work on anyone else’s property — those four answers drive most of the quote. If you’re not sure where to start making that case to yourself, it’s exactly the kind of specific, bounded question a single advisor who’s already run a business through a claim can answer in one call, faster than researching it alone.
Frequently asked questions
Does forming an LLC mean I don’t need business insurance?
No. An LLC separates your personal assets from a lawsuit against the business itself, but it does nothing for the business’s own money — a client who sues over an injury, a mistake in your work, or property damage is suing the LLC’s bank account, not yours, and that account has to come from somewhere. The SBA’s own guidance says it directly: an LLC’s liability protection “has limits,” and business insurance is what fills the gap it leaves.
What insurance is actually required by law, not just recommended?
Once you have employees, the federal government requires workers’ compensation, unemployment insurance, and disability insurance, per the SBA. Workers’ comp is where the real variation sits: it’s state-by-state, not federal. Texas and South Dakota don’t require it at all. Most other states require it starting with your very first employee. A handful — Alabama, Mississippi, Missouri and Tennessee among them — only require it once you reach five employees, with lower thresholds (often just one) for construction-classified work specifically. Check your own state’s labor department before your first hire’s start date, not after.
What’s the difference between general liability and professional liability insurance?
General liability covers bodily injury and property damage your business causes to someone else — a client who slips in your studio, a delivery that damages someone’s property. Professional liability, also called errors and omissions (E&O) insurance, covers claims that your advice or service itself was the problem — a mistake, a missed deadline, bad advice a client relied on. The SBA recommends general liability broadly and professional liability specifically for service-based businesses; many founders eventually need both.
How much does general liability insurance actually cost?
Insureon’s own customer data puts the average at $45 a month, with annual policies typically running $250 to $3,000 depending on industry, location, claims history, and the coverage limits chosen. Most of Insureon’s customers choose a policy with a $1 million per-occurrence limit and a $2 million aggregate limit, and 22% pay less than $30 a month — coverage is cheaper, for most small businesses, than the stories about six-figure lawsuits make it sound.