Texas Business Insurance Requirements: What Is Mandatory and What Is Smart
Texas Business Insurance Requirements: What Is Mandatory and What Is Smart
Texas does not require most businesses to buy general liability, property, or any other business insurance just to operate. What the state requires depends on what you do: the vehicles you drive, the trade license you hold, the broker or inspector license you need, and whether you have employees on a government job. This guide separates Texas business insurance requirements into what is mandatory and what is smart, and names the agency to confirm each point.
Disclaimer: This guide is informational content, not legal, insurance, or tax advice. Requirements change, and the rules for your business depend on its structure, licenses, and contracts. For a complex situation, talk with a licensed Texas insurance agent, an attorney, or a CPA before you make decisions.
Texas Has No General Business Insurance Mandate
No Texas statute requires a retail shop, consulting firm, or restaurant to carry general liability insurance simply because it is a business. Texas also does not issue a general state business license, and there is no statewide general contractor or roofing license. Counties license nothing for most businesses; the only county filing most owners see is the assumed name certificate that sole proprietors file with the county clerk.
The state's insurance rules attach to specific activities. If your business does not operate vehicles, hold a regulated license, or employ workers on a government project, Texas may require no insurance at all. Your landlord, customers, or lender may still require coverage, and that is often the real reason to buy it.
Mandatory Coverage: What the Law Ties to Your Activity
Vehicles and Auto Liability
Vehicles operated on Texas roads must carry liability coverage of at least 30/60/25 under Transportation Code chapter 601. In plain terms, that means $30,000 for bodily injury to one person, $60,000 for bodily injury in one accident, and $25,000 for property damage. Those figures are minimums. A business that puts employees or customers in company vehicles usually needs more, and a personal auto policy may not cover business use.
Air Conditioning and Refrigeration Contractors
An air conditioning or refrigeration contractor licensed by the Texas Department of Licensing and Regulation (TDLR) must keep commercial general liability coverage under 16 TAC 75.40. The required limits vary by license class. Confirm the figure for your class with TDLR before you buy a policy, because a limit that fits one class can fall short for another.
Electrical, Plumbing, and Vehicle Dealer Licenses
Electrical, plumbing, and vehicle dealer licensees each have their own insurance and bond rules, and they come from different agencies. Check TDLR for electrical licenses, the State Board of Plumbing Examiners for plumbing licenses, and the Texas Department of Motor Vehicles (TxDMV) for vehicle dealers. Do not assume that a requirement you read for another trade applies to yours.
Real Estate Brokers and Inspectors
An individual real estate license holder is not required to carry errors and omissions (E&O) insurance personally. A business-entity broker is different. If the designated broker owns less than 10% of the brokerage, the entity must carry E&O coverage of $1 million per occurrence under Occupations Code 1101.355, documented on the Texas Real Estate Commission (TREC) form BE COI-1. Real estate inspectors must also carry E&O. Confirm the required inspector amount and the current form with TREC before you open the business.
Workers' Compensation: Optional for Most, Required for Government Work
For most private employers in Texas, workers' compensation coverage is optional under Labor Code 406.002. That is unusual, and it carries real consequences. An employer without coverage gives up the standard protections that come with a workers' compensation policy, and an injured worker can sue. Many businesses carry it anyway for that reason. If you are considering opting out, confirm the consequences with an attorney first.
The exception is government work. A contractor on a government building or construction project must certify workers' compensation coverage under Labor Code 406.096. If you bid public work, build that certification into your insurance plan from the start, not after the award.
What Is Smart: Coverage Most Texas Businesses Should Consider
Beyond the mandatory lines, Texas commercial insurance is a risk decision. These are the coverages that most business owners should at least price out:
- General liability. Texas general liability insurance pays for third-party bodily injury and property damage that your business causes, plus certain advertising injury claims. It is the coverage landlords, clients, and lenders ask for first. It does not cover your own employees' injuries, which is workers' compensation's job, or mistakes in professional advice, which is professional liability's job.
- Commercial property. This covers your building or leased space improvements, equipment, inventory, and furniture against fire, theft, and similar losses.
- Professional liability (E&O). For consultants, designers, accountants, brokers, and anyone who sells advice or a professional service, this covers claims that your work caused a client financial harm.
- Commercial auto. A business use policy goes beyond the state minimum and protects the company when an employee drives a vehicle for work.
- Business owner's policy (BOP). Many small businesses bundle general liability and commercial property into one policy. Compare a BOP against separate policies, because the bundle is often simpler but may carry sublimits that cap coverage for specific losses.
- Cyber liability. Worth considering if you store customer data or take card payments.
- Umbrella liability. Extra liability limits that sit above your primary general liability and auto policies.
Where Contracts and Lenders Make the Decision
Many Texas businesses buy insurance because someone else requires it. A commercial lease often requires general liability and property coverage, with the landlord named as an additional insured. A bank loan often requires property coverage with the lender named as loss payee. A general contractor or government agency may require a certificate of insurance before you start work.
Read the insurance section of every contract before you sign. Ask your agent to match each policy's coverage and limits to what the contract requires, including the additional insured and waiver of subrogation wording. A missing endorsement can put you in breach even when you carry a general liability policy.
Business Formation Costs in Context
Insurance is one line in a startup budget. These Texas figures sit alongside it:
| Item | Amount or Rule | Where to Confirm |
|---|---|---|
| LLC Certificate of Formation (Form 205) | $300 filing fee | Texas Secretary of State |
| Assumed name certificate for an LLC (Form 503) | $25 filed with the Secretary of State | Texas Secretary of State |
| Franchise tax no-tax-due threshold | $2,650,000 in total revenue for the 2026 and 2027 report years; entities under it still file a Public Information Report | Texas Comptroller |
| Public Information Report | Due May 15 each year to the Comptroller, not the Secretary of State | Texas Comptroller |
| Income taxes | No personal income tax and no corporate income tax; the franchise tax applies instead | Texas Comptroller |
How to Build Your Texas Insurance Plan
- List every activity. Include vehicles, licenses, employees, government bids, and the contracts you sign.
- Check license-specific rules with the agency. Confirm your limits and forms with TDLR, the State Board of Plumbing Examiners, TxDMV, or TREC, depending on your license.
- Pull the insurance clauses from your leases, contracts, and loan documents. These often set your real minimums.
- Get quotes from a licensed Texas agent. Price general liability, property, and any professional or auto line. Compare a BOP against separate policies.
- Keep certificates on file. Store a current certificate for each landlord, client, lender, and government agency that asks for one.
- Review every year. Recheck coverage when you add a vehicle, employee, license, location, or major contract.
Official Sources to Confirm Before You Buy
- Texas Secretary of State: entity formation, assumed names, and filing fees.
- Texas Comptroller of Public Accounts: franchise tax, the Public Information Report, and sales tax permits.
- Texas Small Business Development Center Network: free and low-cost business advising across the state.
For insurance rules tied to a license, confirm directly with TDLR, the State Board of Plumbing Examiners, TxDMV, and TREC on each agency's website. Insurance requirements are set by those agencies and can change, so the agency page controls over any summary, including this one.
When to Get Professional Help
Talk with an attorney before you sign a contract with indemnity or insurance clauses, before you opt out of workers' compensation, or before you bid government work. Talk with a CPA about entity choice and franchise tax. Talk with a licensed Texas insurance agent about limits, endorsements, and whether a BOP fits your business. A short conversation with each of them usually costs less than one uninsured claim.
Disclaimer: This article is general information about Texas business insurance and does not constitute legal, insurance, or tax advice. Consult a qualified attorney, CPA, or licensed insurance professional about your specific situation.