Business insurance is not a rite of passage. It is a risk decision.
Whether you need it, and when, depends on three things: what your business does, who it serves, and how much personal exposure you are willing to accept. Unlike taxes or registration, insurance is not universally mandatory at day one. It becomes necessary when the risks your business creates exceed what you can absorb personally.
Part of the confusion comes from treating “business insurance” as a single product. It is not. It is a set of protections designed for different failure modes. General liability covers injuries or property damage. Professional liability covers errors in judgment or work quality. Property insurance covers physical assets. Commercial auto covers vehicles used for business. Each becomes relevant under different conditions.
Many early businesses operate without coverage initially. Some do so safely. Others learn the hard way that a single incident can erase years of effort. The question is not whether insurance exists. It is whether the downside of being uninsured is acceptable to you.
When insurance is not optional
In Canada, certain situations trigger mandatory coverage.
If you have employees, workers’ compensation insurance is required in every province. The moment you hire someone, this becomes a legal obligation.
If you operate a vehicle primarily for business, personal auto insurance no longer applies. Commercial auto coverage is required for deliveries, equipment transport, or regular business use.
If you lease a physical space, insurance will be required by contract. Most landlords demand general liability coverage, often $2 million or more, before you can operate.
These are not judgment calls. They are structural constraints. You cannot legally or contractually operate without coverage once these conditions are present.
When clients decide for you
Even when the law does not require insurance, the market often does.
Corporate clients, agencies, and government contracts commonly require proof of insurance before work begins. For many service businesses, insurance is less about protection and more about access. Without it, you are excluded from entire categories of work regardless of competence.
This is especially true in professional services, construction, trades, and consulting. The decision becomes binary. Either you carry coverage, or you cannot compete for higher-quality contracts.
The risk you are actually managing
Insurance exists to protect against low-probability, high-impact events.
For general liability, that might be a customer injury, accidental property damage, or a claim related to your physical presence or product.
For professional liability, it is usually financial harm caused by an error, omission, or judgment call. This matters most when your work directly affects client outcomes. Accounting errors, engineering mistakes, flawed advice, or missed deadlines can create losses far larger than your annual income.
If a realistic failure scenario would exceed what you could personally pay without financial damage, insurance is not a luxury. It is a transfer of risk you should not be carrying yourself.
When operating uninsured can be reasonable
Some businesses can reasonably defer insurance early, with eyes open.
Solo operators working from home, delivering fully digital services, selling no physical products, and serving small clients often face limited liability exposure. A freelance writer or designer may decide that early insurance costs outweigh the immediate risk.
This is effectively self-insurance. You are betting that no claim arises that exceeds your ability to pay. That bet becomes less rational as revenue grows, clients become larger, or personal assets accumulate.
Incorporation offers some legal separation, but it is not a substitute for coverage. Insurance is what actually pays claims.
What insurance typically costs
For low-risk service businesses, general liability often costs a few hundred dollars annually. Professional liability can range from under a thousand to a few thousand dollars depending on industry and exposure. Higher-risk industries pay more.
The right comparison is not premium versus revenue. It is premium versus downside. If a single claim could cost tens of thousands of dollars, the math becomes straightforward.
A practical decision framework
Get insurance immediately if you have employees, a leased space, higher-risk physical work, professional judgment exposure, commercial vehicles, or clients who require it.
You can reasonably defer if you are solo, remote, low-risk, early-stage, and understand what you are personally risking.
Revisit the decision when revenue grows, clients change, assets accumulate, or your operating model shifts.
The ownership lens
Insurance does not protect your ambition. It protects your downside.
Good owners do not eliminate risk. They decide which risks are worth carrying personally and which are not. Business insurance is not about pessimism. It is about ensuring that one bad outcome does not undo years of disciplined work.
The real question is not “do I need insurance today?” It is “what happens if something goes wrong tomorrow?”
