Finance · Insurance
Small business insurance, what you must carry
The coverage California requires, the policies most owners should consider, and how to buy them without paying for what you do not need.
Small business insurance is the set of policies that pays when something goes wrong: an injured worker, a customer who slips, a fire, a flood, a lawsuit over your work or a hacked email account. Some coverage is required by California law. The rest is a business decision about which losses you could survive on your own. A business that took years to build should not be one bad afternoon away from closing.
This guide uses the U.S. Small Business Administration (SBA), California’s Division of Workers’ Compensation and Labor Commissioner, the DMV, the California Department of Insurance, FEMA and the FBI’s 2025 Internet Crime Report, all checked Nov. 13, 2026. Policies differ by insurer, so read the declarations page and exclusions of any policy before you buy.
What California requires
Workers’ compensation
If you have even one employee, California requires workers’ compensation insurance. It pays medical care and disability benefits when an employee is hurt or becomes ill from work, regardless of fault. You can buy it from a licensed insurance company or the State Compensation Insurance Fund, or self-insure with state approval. Family members who work in the business count as employees.
Going without is costly. The Labor Commissioner issues a stop order that bars you from using employee labor until you buy coverage, and the penalty is the greater of twice the premium you would have paid or $1,500 per employee. Our guide to hiring your first employee explains when to buy it in the hiring process.
Penalty for an uninsured three-person team
Illustrative example. The penalty is twice the unpaid premium if that is higher, and the stop order halts work until coverage is in place (Labor Commissioner FAQ).
State payroll insurance programs
The SBA notes that businesses with employees must carry workers’ compensation, unemployment and disability insurance. In California, unemployment and disability coverage runs through the EDD payroll system rather than a private policy: employers pay Unemployment Insurance at 1.5% to 6.2% (3.4% for new employers) on the first $7,000 of each employee’s wages in 2026, and employees pay State Disability Insurance (SDI) through 1.3% withholding.
Commercial auto
Any vehicle on California roads needs liability insurance. The DMV lists the same minimums for private passenger, commercial and fleet vehicles: $30,000 for injury or death of one person, $60,000 for more than one person and $15,000 for property damage. Under Senate Bill 1107, the minimums rose on Jan. 1, 2025, from 15/30/5, according to the California Department of Insurance. Commercial vehicles may face higher requirements from other agencies, and collision or comprehensive coverage does not satisfy the law on its own.
California auto liability minimums (per accident)
| Coverage | Before Jan. 1, 2025 | Since Jan. 1, 2025 |
|---|---|---|
| Injury or death, one person | $15,000 | $30,000 |
| Injury or death, more than one person | $30,000 | $60,000 |
| Property damage | $5,000 | $15,000 |
A minimum policy rarely matches business risk. A serious accident in a work van can exceed $30,000 quickly, and many clients and landlords write higher limits into their contracts. Personal auto policies may also exclude business use, so tell your agent how each vehicle is used.
The core policies most businesses consider
The SBA groups small business insurance into a handful of common policies. Which ones you need depends on what you sell, where you work and what your contracts require.
Common small business insurance policies
| Policy | What it covers | Who usually needs it |
|---|---|---|
| General liability | Bodily injury, property damage and related medical costs and lawsuits | Almost every business, especially with customers on site |
| Product liability | Injury caused by a defective product | Makers, wholesalers, distributors and retailers |
| Professional liability | Claims of errors, negligence or malpractice in services | Consultants, designers, accountants, health and technical services |
| Commercial property | Damage to buildings, equipment and inventory from covered events | Businesses with significant physical assets |
| Business owner’s policy (BOP) | A bundle that typically combines liability and property coverage | Many small and home-based businesses |
| Home-based business rider | A small amount of business equipment under a homeowner’s policy | Home businesses with little equipment |
The SBA notes that a rider added to homeowner’s insurance can cover a small amount of business equipment. It usually will not cover a client injured at your home office or a lawsuit over your work. If customers visit or you hold inventory, ask about a business owner’s policy.
Two risks standard policies may miss
Flood
Do not assume a property policy covers rising water; ask your agent whether flood is excluded and whether you need a separate flood policy. Through the National Flood Insurance Program (NFIP), FEMA says business building and contents coverage each go up to $500,000. Coverage normally starts 30 days after purchase, with exceptions such as a policy bought while making or renewing a mortgage. In other words, the time to buy is before the storm forecast.
Cyber and fraud
Cybercrime is now a routine business risk. The FBI’s Internet Crime Complaint Center (IC3) received 1,008,597 complaints in 2025 with reported losses of $20.877 billion, an average of $20,699 per complaint. Business email compromise, where criminals impersonate a vendor or executive to redirect a payment, accounted for $3.05 billion. California ranked first among states in both complaints and reported losses.
Reported losses by crime type, 2025 (billions of dollars)
Source: FBI IC3 2025 Internet Crime Report. Values rounded to the nearest $10 million.
Cyber insurance policies may cover costs such as breach response and some fraud losses, but terms differ widely. Many policies limit coverage for payments an employee was tricked into sending, so read that section closely. Policies are no substitute for basic controls: confirm any change in payment instructions by phone, use multifactor login and keep backups.
How to buy small business insurance
A five-step buying checklist
- List your risksCustomers on site, products, professional advice, vehicles, property, data and the contracts you sign. The SBA’s first step is to assess what could damage your business.
- Start with what is requiredWorkers’ compensation for any employee and auto liability for every vehicle; then match limits your leases and client contracts demand.
- Use a licensed agent or brokerCheck the license on the California Department of Insurance website and ask how the agent is paid; the SBA notes agents earn commissions.
- Compare at least three quotesCompare limits, deductibles, exclusions and the insurer, not just the price.
- Review every yearUpdate coverage when you hire, add a vehicle, sign a lease or add a product.
Insurance premiums belong in your budget as a fixed cost. Our small business budget guide shows where they fit, and our California business structure guide explains how an LLC or corporation protects personal assets in ways insurance does not. The California Department of Insurance consumer hotline, 800-927-4357, can help with questions or complaints about an insurer.
Common mistakes
- Hiring before buying workers’ comp. Coverage must be in place before the first shift.
- Driving for work on a personal policy. Business use may be excluded.
- Buying state minimum auto limits. $30,000 rarely covers a serious injury claim.
- Assuming property insurance covers floods. Ask, and remember the NFIP’s 30-day wait.
- Skipping the exclusions. The exclusions page decides what a policy really pays.
Key terms
- Premium: the price you pay for a policy, usually annually or monthly.
- Deductible: the amount you pay on a claim before the insurer pays.
- Limit: the most a policy will pay per claim or per year.
- Business owner’s policy (BOP): a bundle that typically combines liability and property coverage for small businesses.
- Stop order: a Labor Commissioner order that bars an uninsured employer from using employee labor until it buys workers’ compensation.
The bottom line: small business insurance starts with what California requires, workers’ compensation for any employee and 30/60/15 auto liability for every vehicle, and then adds the policies that match your real risks: general and professional liability, property, flood and cyber. Compare quotes from licensed agents, read the exclusions, and revisit your coverage every time the business grows.
Free help in the Sacramento region
You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.
Key takeaways
- California requires workers’ compensation for any employee; going without brings a stop order and at least $1,500 per employee.
- Auto liability minimums are $30,000/$60,000/$15,000 since Jan. 1, 2025, for commercial vehicles too.
- General liability, professional liability, property and a business owner’s policy cover most core risks.
- NFIP flood coverage for businesses goes up to $500,000 each for building and contents, after a 30-day wait.
- Business email compromise caused $3.05 billion in reported losses in 2025, per the FBI.
Frequently asked questions
What insurance is legally required for a small business in California?
Workers’ compensation is required as soon as you have one employee, and every vehicle needs at least 30,000, 60,000 and 15,000 dollars of liability coverage. Unemployment and disability coverage run through EDD payroll taxes. Leases and contracts may require more.
What is a business owner’s policy?
A business owner’s policy, or BOP, is a package that typically combines general liability and commercial property coverage in one policy. The SBA describes it as a package that bundles the typical coverage options.
What happens if I do not have workers’ compensation in California?
The Labor Commissioner can issue a stop order that bars you from using employee labor until you buy coverage, plus a penalty of twice the premium you should have paid or 1,500 dollars per employee, whichever is greater.
Does business insurance cover floods?
Not always. Ask whether your property policy excludes flood. FEMA’s National Flood Insurance Program offers business building and contents coverage up to 500,000 dollars each, and new policies usually take 30 days to start.
Do small businesses need cyber insurance?
Many do. The FBI received over 1 million cybercrime complaints in 2025 with 20.877 billion dollars in reported losses, including 3.05 billion dollars from business email compromise. Read what a cyber policy excludes, especially payments sent because of fraud.
Sources
- U.S. Small Business Administration: Get Business Insurance
- California Division of Workers’ Compensation: Employer Information
- California Division of Workers’ Compensation: FAQs for Employers
- California Labor Commissioner: Workers’ Compensation Insurance FAQ
- California DMV: Auto Insurance Requirements
- California Department of Insurance: Automobile Insurance Guide
- California Department of Insurance: California’s Low Cost Auto Insurance (consumer alert on the 2025 minimum limits)
- California Department of Insurance: Bulletin 2023-1 on SB 1107 (limits effective Jan. 1, 2025)
- FEMA FloodSmart: Buy a Flood Insurance Policy
- FBI Internet Crime Complaint Center: 2025 Internet Crime Report
- EDD: Tax Rates, Wage Limits, and Value of Meals and Lodging (2026)
Keep reading on Inksight
- Business Credit vs. Personal Credit: What Every Small Business Owner Should Know
- How to Choose a Business Structure in California: Sole Proprietorship, LLC, S Corp or C Corp
- Business Banking 101: How to Choose and Open a Business Bank Account
- Small Business Funding Options: Loans, Grants and Investors
- Business Resources: all guides →
