Choosing a formal business structure—such as a Limited Liability Company (LLC) or a corporation—provides a degree of legal protection, primarily shielding personal assets from certain lawsuits. However, these protections are limited in scope and do not cover many of the risks businesses face daily. Business insurance is essential to fill those gaps, ensuring that both your personal and business assets are protected against unforeseen events such as property damage, liability claims, or employee injuries.

In many cases, having appropriate insurance coverage is not just a best practice—it’s a legal or contractual requirement. For example, the federal government mandates that all businesses with employees carry workers’ compensation, unemployment, and disability insurance, and many commercial leases require proof of insurance coverage. Additionally, individual states may impose further insurance requirements, so it’s important to consult your state’s official website or a licensed insurance advisor to understand your obligations.

As a general rule, you should insure against any risks or losses that your business could not reasonably afford to cover out of pocket.