Texas Business Insurance: What’s Required and What Coverage You May Need

What business insurance is required in Texas?

Texas does not require every business to buy the same insurance package.

Instead, requirements can depend on your employees, vehicles, profession, licenses, contracts, and business activities.

• Most private Texas employers can choose whether to carry workers’ compensation.
• Businesses operating vehicles must meet applicable Texas financial-responsibility laws, and some commercial motor carriers face additional insurance and filing requirements.
• Certain regulated industries can have their own insurance requirements.
• A landlord, lender, customer, franchise agreement, or government contract may require coverage even when a general state law does not.

A restaurant leasing a building, a construction company working for a general contractor, and a consultant working from a laptop can have very different insurance needs even if all three are Texas businesses.

The main types of insurance Texas businesses should understand

You do not necessarily need every coverage below. The point is to understand what each one protects before deciding what fits your business.

General liability insurance

General liability insurance can help protect a business when someone outside the company claims the business caused bodily injury, property damage, or certain personal and advertising injuries.

Imagine a customer slips on a wet floor in your shop and is seriously injured. Or your crew accidentally damages a client’s property while completing a job. Those are the kinds of claims that may fall under a commercial general liability policy, depending on the policy and circumstances. Texas Department of Insurance

General liability is important, but it does not cover every business risk. A standard commercial general liability policy is not designed to replace workers’ compensation coverage and can contain exclusions that matter for particular industries.

Commercial property insurance

Commercial property insurance protects business property against covered losses.

Depending on the policy, that can include:

• buildings
• equipment
• furniture
• inventory
• machinery
• other business property

Texas commercial property policies are not all identical. The Texas Department of Insurance notes that commercial property policies are not standardized in the state, so the protection offered by one policy can differ from another. Texas Department of Insurance

A cheaper property policy is not necessarily the same policy at a lower price. It may cover fewer causes of loss, use different deductibles, or value damaged property differently.

Replacement cost versus actual cash value

Replacement cost generally looks at what it costs today to repair or replace covered property.

Actual cash value generally subtracts depreciation for age and wear.

That difference can be substantial after a major loss. TDI recommends that business owners understand which valuation method their commercial property policy uses. Texas Department of Insurance

Workers’ compensation

Texas handles workers’ compensation differently from most states.

Most private employers in Texas are allowed to choose whether to carry workers’ compensation insurance. Employers that provide coverage are commonly called subscribers. Employers that do not are called non-subscribers. Texas Department of Insurance

But choosing not to carry workers’ compensation is not the same as simply ignoring the system.

Non-subscribers can have state notice and reporting obligations. For example, they must notify employees that workers’ compensation coverage is not being provided, and applicable employers must report certain work-related injuries, illnesses, and deaths to the Texas Division of Workers’ Compensation. Texas Department of Insurance

Workers’ compensation can provide medical and lost-income benefits for covered job-related injuries and illnesses. TDI also notes that, with limited exceptions, workers’ compensation coverage limits an employer’s liability when an injured employee sues. Texas Department of Insurance

For a business with employees, this deserves a real conversation with a licensed professional rather than a quick yes-or-no decision based only on the fact that Texas generally makes coverage optional.

Commercial auto insurance

If vehicles are being used for business, do not automatically assume a personal auto policy will cover that use.

TDI warns that personal auto insurance may not cover accidents that happen while someone is driving for business purposes. Texas Department of Insurance

Texas also has financial-responsibility requirements for vehicles. The general statutory minimum for motor vehicle liability insurance is currently $30,000 for bodily injury to one person, $60,000 for injuries to two or more people in one collision, and $25,000 for property damage. Texas Transportation Code

But those numbers should not be treated as universal commercial-auto recommendations.

Some commercial motor carriers have separate TxDMV registration and insurance requirements, and the required coverage can depend on what they transport and how they operate. Texas Department of Motor Vehicles

Professional liability insurance

A business that provides advice, designs, consulting, professional services, or specialized expertise may have a different risk: a customer claiming that a professional mistake caused financial harm.

Professional liability insurance, sometimes called errors and omissions insurance depending on the profession, is designed for that type of exposure.

Business interruption coverage

Property damage can create two problems at the same time. First, something gets damaged. Second, the business might not be able to operate while it is being repaired.

Business interruption coverage can help with certain financial losses when a business cannot operate normally because of direct physical loss or damage from a cause covered by the policy. Texas Department of Insurance

Texas weather creates insurance issues businesses should not ignore

Flooding

Most commercial property policies do not cover flood damage.

Flood insurance is generally purchased separately through an insurer offering flood coverage or through the National Flood Insurance Program. TDI also notes that flood policies commonly have a waiting period before coverage takes effect. Texas Department of Insurance

A business does not have to sit directly beside a river or the Gulf to have a meaningful flood exposure. If water entering your property from outside could cause a major loss, ask specifically how your policy treats flooding.

Wind and hail on the Texas coast

Businesses along parts of the Texas coast can face another issue: wind and hail may not be included in the commercial property policy they otherwise rely on.

Eligible coastal properties may be able to obtain wind and hail coverage through the Texas Windstorm Insurance Association, commonly called TWIA. TWIA covers qualifying commercial buildings and business personal property in designated coastal areas, subject to eligibility requirements. Texas Windstorm Insurance Association

Ask directly about:

• wind
• hail
• named-storm or windstorm deductibles
• flood
• business interruption following a covered loss

What does business insurance cost in Texas?

There is no useful single average Texas business insurance price that applies to every business.

A one-person consulting company and a construction company with 40 employees, vehicles, equipment, subcontractors, and years of claims history are not similar insurance risks.

Insurers can look at factors such as:

• what your business actually does
• payroll
• annual sales or revenue
• number of employees
• property values
• building construction and location
• vehicles and how they are used
• prior insurance claims
• coverage limits
• deductibles
• safety practices
• years in business
• subcontractor exposure
• professional services
• coastal or catastrophe exposure

Some commercial liability policies also use estimated payroll, sales, or other exposure measures when calculating the initial premium and can later be audited against actual figures. Texas Department of Insurance

Why can two insurers look at the same Texas business differently?

Insurance companies do not necessarily evaluate risk the same way.

One insurer might be comfortable with a certain industry, building type, claims history, or business operation while another may price it differently or decline the risk.

Texas commercial property policies can also differ because they are not fully standardized. Texas Department of Insurance

Two policies can have different:

• exclusions
• deductibles
• liability limits
• property valuation methods
• endorsements
• covered operations
• catastrophe provisions

A lower premium is useful only if the policy still covers the risks you actually need covered.

What should you have ready before requesting business insurance?

You do not need to know insurance terminology before you begin.

But having basic facts about your business ready can make licensed review easier.

Depending on your business, you may be asked about:

• what your company does
• business address and locations
• years in operation
• estimated annual revenue
• payroll
• number of employees
• property and equipment values
• vehicles
• subcontractors
• previous insurance
• claims history
• safety practices
• desired effective date
• contracts that require specific insurance limits

TDI recommends that businesses keep their claims history current and be prepared to explain risk-management and safety measures when seeking commercial liability coverage. Texas Department of Insurance

Be accurate. Leaving out important business operations can create a much bigger problem later.

Before you choose a policy, ask these questions

You do not need to become an insurance expert. You do need to understand what you are buying.

• What risks does this policy actually cover?
• What are the major exclusions?
• What deductible would I pay after a loss?
• Are my property limits based on replacement cost or actual cash value?
• Does the policy cover all of my business activities?
• Are subcontractors handled correctly?
• Does business use of my vehicles require different coverage?
• Is flood excluded?
• Do I have a separate wind or hail deductible?
• What happens to my business income if a covered loss shuts me down?
• Are my limits high enough to satisfy leases or customer contracts?
• Could my premium be adjusted after an audit?

If an answer is unclear, ask again in plain English. A policy is too important to buy without understanding what it is supposed to do.