Starting and running a small business in California is challenging enough without adding insurance confusion to the mix. Yet having the right coverage can mean the difference between a temporary setback and permanent closure.
1. General Liability Insurance
This is the foundation of any business insurance program. General liability protects your business from claims of bodily injury, property damage, and personal injury (like slander or libel) caused by your business operations.
Real-world example: A customer slips on your wet floor and breaks their wrist. Medical bills, lost wages, and pain and suffering could easily exceed $50,000. Without general liability, you’re paying from business assets and potentially personal assets.
General liability typically covers:
- Customer injuries on your premises
- Property damage you cause to others
- Advertising injury claims
- Legal defense costs
Cost: Ranges from $500 to $3,000 annually depending on your industry and coverage limits. Service-based businesses with no physical location typically pay less than retail or manufacturing operations.
Minimum recommendation: $1 million per occurrence / $2 million aggregate
2. Professional Liability Insurance (Errors & Omissions)
If you provide professional services or advice, you need professional liability insurance. This covers claims arising from mistakes, negligence, or failure to deliver promised services.
Real-world example: A marketing consultant’s campaign contains copyrighted material, resulting in a lawsuit against the client. The client sues the consultant for damages. Professional liability covers defense costs and settlements.
This coverage is essential for:
- Consultants and advisors
- Technology professionals
- Real estate agents
- Accountants and bookkeepers
- Healthcare providers
- Architects and engineers
- Insurance agents
Cost: Typically $1,000 to $5,000 annually, heavily dependent on your profession and revenue.
Important note: General liability doesn’t cover professional mistakes. You need both policies.
3. Workers’ Compensation Insurance
In California, workers’ compensation insurance is legally required for virtually all businesses with employees, including part-time workers. Even if you have just one employee, you need coverage.
Workers’ comp covers:
- Medical treatment for work-related injuries or illnesses
- Temporary or permanent disability benefits
- Vocational rehabilitation
- Death benefits for families
The consequences of non-compliance are severe: California can impose fines up to $100,000 plus penalties of up to $10,000 per employee. You can face criminal charges resulting in jail time.
Cost: Varies dramatically by industry. Office workers might cost $0.50 to $2.00 per $100 of payroll, while construction workers could cost $10 to $40 per $100 of payroll.
Special note: Even if you’re a sole proprietor with no employees, consider buying workers’ comp for yourself. It’s optional but provides crucial protection for your income if you’re injured.
4. Commercial Property Insurance
If you own or lease business property, you need commercial property insurance. This covers your building (if you own it), equipment, inventory, furniture, and fixtures.
Real-world example: A fire destroys your retail store. Without property insurance, you lose your inventory, displays, point-of-sale system, furniture (everything). With insurance, you’re compensated for these losses and can rebuild.
Commercial property insurance covers:
- Building damage (if you own the property)
- Business personal property
- Business interruption/income loss
- Equipment breakdown
- Outdoor signs
Important distinction: Your landlord’s insurance covers only the building structure, not your business contents. You need your own policy even if you’re leasing.
Cost: Typically $500 to $3,000 annually for basic coverage, more for high-value inventory or equipment.
5. Cyber Liability Insurance
In 2025, cyber liability insurance is no longer optional. It’s essential. If your business collects customer information, processes payments, or stores data electronically, you face cyber risks.
Real-world example: Hackers breach your customer database, stealing credit card information and personal data. You face regulatory fines, notification costs, credit monitoring obligations, and lawsuits. A single breach can cost small businesses $200,000 or more.
Cyber liability covers:
- Data breach response costs
- Customer notification expenses
- Credit monitoring services
- Regulatory fines and penalties
- Ransom payments
- Business interruption from cyber attacks
- Legal defense costs
Who needs it: Virtually every business. Even if you think you’re not a target, you are. Small businesses are attacked because they typically have weaker security than large corporations.
Cost: $1,000 to $7,000 annually depending on your data exposure and security measures.
Other Coverage to Consider
Depending on your business, you may also need:
- Commercial auto insurance (if you or employees drive for business)
- Employment practices liability (protects against wrongful termination, discrimination claims)
- Commercial umbrella (additional liability coverage above other policies)
- Business owner’s policy (BOP) (bundles general liability and property insurance, often at a discount)
The Bottom Line
Insurance might seem like an unnecessary expense when you’re starting out, but it’s one of the smartest investments you can make. One lawsuit, one fire, one data breach could destroy everything you’ve built.
Work with a commercial insurance specialist who understands California business risks and can customize coverage to your specific needs. Don’t shop based solely on price. Focus on adequate protection with a reputable carrier.
Your business insurance isn’t just about protecting assets. It’s about protecting your dream, your livelihood, and your future.