Understanding Texas Business Insurance Requirements
Starting or running a business in Texas comes with exciting opportunities and important responsibilities. Among the most crucial is making sure your business is properly insured.
Whether you're opening a small retail shop in Austin or managing a tech startup in Dallas, knowing the state's business insurance requirements is essential to protecting your investment, employees, and operations.
As a business attorney in Collin County, Texas, I've come to learn that protecting what our clients have built is just as important as growing it. Here, I'll break down the key types of business insurance required or recommended in Texas, explain legal obligations, and provide tips to help you stay compliant while managing risk.
What Insurance Is Required for Texas Businesses?
Let’s start with the basics. Unlike some other states, Texas doesn’t mandate many types of business insurance. That said, businesses aren't entirely off the hook. Depending on how a company operates and who it hires, there are still legal requirements that must be followed.
Here’s what the state requires:
Workers' compensation: Texas is unique in that it doesn't require most private employers to carry workers' compensation insurance. However, if a business chooses not to provide this coverage, it must notify employees in writing and report the decision to the state.
Commercial auto insurance: Any business that owns or operates vehicles is legally required to carry a commercial auto policy with minimum liability coverage.
Professional liability for licensed professions: In certain regulated industries—such as healthcare, law, or engineering—specific liability coverage may be required by licensing boards or regulatory agencies.
Even when not legally required, many clients, landlords, or contractors may refuse to work with a business unless it can provide proof of insurance coverage.
Recommended Coverage That Protects Your Business
Just because a type of insurance isn’t legally required doesn’t mean it isn’t smart to have. The right business insurance can make the difference between surviving a lawsuit or disaster and shutting down operations. The following are key types of business insurance that many companies carry or consider, depending on their size and scope.
General liability insurance: Protects a business from third-party claims involving bodily injury, property damage, and personal injury, such as slander or libel.
Professional liability insurance: Also known as errors and omissions insurance, this covers legal fees and damages if the business is sued for professional negligence.
Property insurance: Whether the business owns or leases its space, this policy protects buildings, inventory, furniture, and equipment against theft, fire, or natural disasters.
Business interruption insurance: If operations are shut down due to a covered event, this coverage helps replace lost income and pay ongoing expenses.
Cyber liability insurance: For businesses that handle customer data, this policy helps cover the costs associated with a data breach, including customer notifications, legal defense, and recovery efforts.
Employment practices liability insurance (EPLI): For businesses with employees, this protects against claims related to wrongful termination, harassment, or discrimination.
Having the right insurance not only provides peace of mind but can also be a critical factor in securing contracts, as many clients require proof of coverage.
Why General Liability Is a Starting Point
New business owners are often advised to start with general liability insurance. It’s typically affordable, widely accepted by landlords and clients, and covers many of the most common day-to-day risks a business may face.
For example, if someone slips and falls on business premises or if a company accidentally damages a client’s property, this is the policy that can help avoid paying out of pocket.
What general liability usually covers:
Injuries to non-employees on the business property
Damage caused to others’ property during work
Advertising injury or defamation claims
Legal defense costs and settlement fees
Most general liability policies include both per-occurrence and aggregate limits, which determine how much the insurer will pay per claim and in total. When unsure about coverage needs, it’s wise to consult a broker to determine appropriate limits based on the specific industry and level of risk.
When You Need Workers’ Comp and When You Don’t
Texas is one of the few states where workers’ compensation insurance is not mandatory for private employers. However, that doesn’t mean carrying it isn’t a smart decision. Workers’ compensation is often worth the investment—even when not required—because it helps protect both the employee and the business if someone is injured on the job.
Situations where workers’ comp should be strongly considered:
Employees are engaged in manual labor, construction, or other physically demanding roles
The business wants to avoid potential personal injury lawsuits from staff
Government or commercial clients require it as part of contract agreements
Offering comprehensive protection to employees and reducing liability is a priority
If a business opts not to purchase workers’ compensation, it must provide written notice to every new hire and file an annual notice of non-coverage with the Texas Division of Workers’ Compensation. Without coverage, the business remains fully exposed to personal injury lawsuits—costs that can far exceed the price of a premium.
How Commercial Auto Insurance Differs from Personal Coverage
If a business uses vehicles for work purposes—even occasionally—a commercial auto policy is likely necessary. Personal auto insurance typically doesn’t cover accidents that occur during business-related driving. This can lead to denied claims, as in the case of someone being involved in an accident while delivering products to a client.
A commercial auto policy is required when:
The vehicle is owned or leased by the business
Employees use personal vehicles for deliveries or job-related errands
Tools, equipment, or people are transported as part of the job
Texas law mandates minimum liability limits, but higher coverage limits often provide more complete protection. Many businesses also choose to add optional coverages—such as collision and comprehensive insurance—to cover damage to their own vehicles, not just others’..
Dealing With Client or Vendor Insurance Requirements
Even when insurance isn’t legally required, many businesses are asked to carry it as a condition of doing business. Clients, vendors, landlords, and lenders often request proof of insurance—typically in the form of a certificate of insurance (COI).
Some common coverage terms in contracts include:
Minimum policy limits for general liability and auto liability
Additional insured clauses for clients or landlords
Waiver of subrogation language
Proof of coverage before work begins
Rather than scrambling to adjust policies later, it’s helpful to share contracts with an insurance agent early in the process. This allows the agent to make sure that the business’s coverage meets all required terms from the outset.
Industry-Specific Insurance Considerations
Some industries face higher risks and require more specific forms of business insurance. For example, contractors, food service providers, and tech startups each have unique exposures. As businesses grow and expand into different services, it’s important to review insurance needs regularly.
A few industry-specific examples include:
Construction: General contractors often require builder’s risk, contractors’ equipment coverage, and bonding
Restaurants: Common needs include food spoilage, liquor liability, and fire protection
Healthcare providers: Malpractice insurance and HIPAA-compliant cyber policies are essential
Technology firms: Cyber liability, intellectual property protection, and data loss coverage are key priorities
Consulting an attorney or insurance broker familiar with the specific industry can help make sure the business has the right coverage to remain protected and competitive.
Business Structure and Location
A business’s legal structure also influences which types of insurance are appropriate. For instance, sole proprietors are personally liable for claims unless they carry adequate business insurance. In contrast, LLCs and corporations offer some legal protections, but those protections are not comprehensive without proper coverage.
Location is another important factor. Businesses operating in multiple states or employing remote workers may need to comply with insurance requirements in other jurisdictions. Texas, for example, has its own rules that differ from those in other states, and individual cities or counties may have additional regulations that must be followed.
Keeping Policies Current as Your Business Grows
A common mistake many businesses make early on is setting policy limits and then forgetting about them. As revenue and payroll grow, more coverage is often needed. Insurance isn’t a “set-it-and-forget-it” decision.
It’s important to review business insurance needs annually and after any major change, such as launching a new service, purchasing equipment, or expanding office space.
Some tips for staying up to date include:
Schedule an annual insurance review
Track client or landlord policy requirements
Reassess policy limits as revenue increases
Add endorsements when launching new offerings
Maintain updated COIs for contract work
Having the right coverage today doesn’t guarantee sufficient protection tomorrow. Staying proactive assures a business remains protected and avoids costly gaps in coverage.
Contact a Business Attorney Today
If you're looking for an experienced business attorney, don't hesitate to reach out to Laird Morgan, Lawyer today. I serve clients throughout Collin County, Texas, and you can feel confident knowing I have your best interests at heart. Contact me today to schedule a consultation.