While Michigan has its roots in automobile manufacturing, small businesses are still a large part of the state’s economy. When it comes to Michigan business insurance, the state has some one-of-a-kind coverages you won’t find elsewhere. Workers’ compensation and commercial auto are required in Michigan while other coverages, such as general liability, play an important role in a healthy small business.
Michigan Business Insurance Requirements
While every state has nuances for business insurance, Michigan business insurance requirements are fairly straightforward. The most notable is the workers’ compensation requirement. Michigan also has auto insurance requirements, which are unique to the state.
Beyond those two state-mandated coverages, Michigan requires small businesses in some industries to carry general liability to be licensed or to do work.
Every business owner needs to be aware of the serious financial risk associated with not insuring their business property.
Workers’ compensation insurance is important coverage for employers to provide to their employees. If an employee becomes injured or ill because of their work, the coverage helps with some wage replacement and medical expenses and gives them an opportunity to return to work.
If the employee dies from a work-related injury or illness, workers’ comp provides benefits for the family and liability protection for the employer. Death on the job is an unfortunate reality. In Michigan in 2022, there were 139 total fatal injuries sustained while on the job.[1]
In Michigan, the Workers’ Disability Compensation Act makes workers’ compensation mandatory coverage in any of the following situations:
- Your employees work 35 hours for a minimum of 13 weeks. If you only have one employee who fits that description, then you must offer them workers’ comp.
- Your business employs three or more employees simultaneously, including part-time workers.
- You’re an agricultural employer who employs three or more employees, working 35 hours per week for a minimum of 13 weeks.
In Michigan, partners, corporate officers, and limited liability company (LLC) members are all considered employees and so must also be covered under workers’ compensation. The only exception is a sole proprietor (self-employed) individual. This person is never considered an employee and therefore not subject to the above rules.[2]
If you are a sole proprietor, look at our quick guide to workers’ compensation for self-employed individuals.
When it comes to personal or commercial auto insurance, Michigan is a bit of an outlier, as it is considered a no-fault state. This means you are responsible, for the most part, for the damage to your vehicle and injuries in your vehicle, regardless of negligence in the accident.
Until recently, Michigan personal injury protection (PIP) was required coverage within a commercial auto policy. However, exceptions do exist now, including for these scenarios:
- You have proof from a health insurer or employer showing their policy does not exclude auto accidents.
- You have an individual deductible of less than $6,000.
Additionally, Medicare and Medicaid participants can also elect to not purchase PIP coverage, but they must show proof of enrollment.
These qualifiers indicate the exemptions for PIP in Michigan are directed primarily toward personal auto and not commercial auto insurance.[3]
When I worked in insurance, I once heard a Michigan PIP adjuster say Michigan employers don’t need to bother with health insurance because of Michigan PIP. While that’s an exaggeration, it does speak to how generous and broad Michigan PIP is in its application. It even has an unlimited coverage option (meaning there is no limit).
Nathan Weller
Insurance Staff Writer at FitSmallBusiness
In addition to medical expenses, the PIP will help with some wage replacement, in-home nursing services, and household duties.
Some of the other unique Michigan commercial auto insurance requirements are:
- Residual bodily injury liability: Provides coverage for a non-Michigan resident who is injured or dies in an accident when you are at fault and is also used to cover excess expenses not covered by the other driver’s PIP policy
- Property damage: Handles damage to another party’s vehicle if you are at fault and outside of the state of Michigan
- Property protection insurance: Is third-party liability coverage for damage you cause to “tangible property” like a fence or parked car
In Michigan, any vehicle that transports people for a fee (a “for-hire livery”) is required to be insured.
General Liability Insurance in Michigan
There is no statewide requirement for business liability insurance in Michigan. That said, it is never a bad idea to check with local municipalities for their requirements. Most public entities will require proof of insurance to work with it. There are several industry requirements within the state:
- General contractors are required to carry general liability insurance with a minimum coverage of $500,000 per occurrence and $1 million aggregate. A contractor’s bond of at least $10,000 for residential builders and $25,000 for commercial builders is also required.
- Heating, ventilation, and air conditioning (HVAC) contractors in Michigan should carry the following insurance: general liability, workers’ compensation, and commercial property. Limits will depend on the local municipality as there is no set state limit.
In short, make sure to check with your industry licensing boards and local municipal governments to see the Michigan business insurance requirements you may need to meet.
You can provide proof of property coverage through a certificate of insurance (COI). Often, you will have to produce a COI if you are bidding on a project, renting space, or even vending at a trade show. The COI will list your coverages.
General liability is called as such because it provides broad coverage for your business from third-party claims and is focused on three areas:
- Bodily injury
- Property damage
- Personal and advertising injury
Typically, most insurance providers in Michigan will include additional coverages like medical payments, premise liability, and product liability insurance in their general liability policy.
Other Types of Small Business Insurance for Michigan
Michigan business insurance requirements are straightforward: you must have commercial auto and workers’ comp in most situations. However, that doesn’t mean you only need these coverages.
For example, in 2020 to 2021, the average cost of a slip-and-fall claim was $49,971.[4] While this average is for workers’ comp claims, the statistic still illustrates the significant expense of a common occurrence like someone slipping and falling while on your business property.
Type of Coverage | What It Is |
|---|---|
Professional Liability | Covers claims of financial harm or loss as a result of advice or failure to perform a contracted service made by a third party |
Commercial Property | Is first-party coverage for property owned, typically fixed property or contents |
Business Owner’s Policy (BOP) | Is a combination of general liability, commercial property, and usually business lost income |
Inland Marine | Is first-party coverage for tools and equipment |
Commercial Umbrella | Is excess liability coverage that provides additional limits |
Cyber Liability | Is first- and third-party coverage for losses related to data breaches, hacking, or other cyber-related losses |
Employment Practices Liability Insurance (EPLI) | Protects small business owners from claims of wrongful termination or other harmful employment practices |
Professional liability insurance differs from general liability because it has a narrower focus on coverage. In particular, industries in the service sector or that provide advice as a service should consider professional liability.
Professional liability insurance in Michigan offers business protection for negligence related to giving advice or adhering to a contract. This is why you will often see professional liability coverage referred to as errors and omissions insurance.
Since the largest industry in Michigan is the service sector, many small businesses should look into purchasing professional liability insurance. Check out our guide to the best professional liability insurance companies to compare your options.
While liability insurance provides a layer of protection for your business from third-party allegations of negligence, it doesn’t help you if someone steals some of your equipment. That’s why you’ll need to consider commercial property coverage for your business. This is a first-party coverage for a business owner who:
- Owns a building
- Rents office space with furniture
- Has a warehouse full of inventory
Since commercial property is first-party coverage, commercial property insurance carries an insurance deductible.
Keep in mind that when discussing coverage for your property, it is almost always limited to the specific listed location on the policy.
One great option for insuring your small business is a BOP, which brings together several of the coverages listed above. It is advantageous for a small business because it combines general liability and commercial property. Usually, insurance carriers also include a third coverage for lost business income. Beyond convenience, a BOP is more affordable than purchasing each policy separately.
However, it isn’t necessarily for every small business. Most insurance companies place a limit on the size of the business that can purchase a BOP. Usually, only businesses with revenue under $5 million, or fewer than 100 employees, are eligible for a BOP.
For a deeper dive into the differences, check out our BOP vs general liability insurance comparison.
A good complement to commercial property, inland marine insurance is first-party coverage that is often recommended if you work in an industry with tools or equipment, such as painting, contracting, or home repairs. Some providers will provide blanket coverage for tools and equipment, and others will have you list, or “schedule,” each item on the policy with their value.
One major difference between inland marine and commercial property insurance is that inland marine coverage “travels” with the tools and equipment, while commercial property insurance only covers fixed property at a cited location.
If your business is in a risky industry or you have concerns about the total limits for your liability policy, you may want to consider an umbrella insurance policy. This is an excess liability policy, which means that its limits will not come into play until the limits of other policies are exhausted.
For example, say you have a general liability policy with a limit of $2 million and a commercial umbrella policy with a limit of $1 million. Once the general liability policy of $2 million is exhausted, you could file a claim for the additional $1 million in coverage from the umbrella policy.
In an age when nearly all of your work is conducted on a computer and data is stored in a cloud, you cannot underestimate the importance of the only coverage available for losses related to cybercrimes: cyber liability insurance. Don’t let the name fool you, though, as cyber liability is divided into first- and third-party coverage:
- First-party cyber liability coverage helps with the expenses you face from a data breach, including investigations and notifying anyone impacted.
- Third-party cyber liability coverage helps protect your business if customers decide to sue you over negligence. In the event of a data breach, your business may be subject to fines and penalties from the government or private entities. This part of the policy can also help with those fines.
Last, but certainly not least, small business owners should consider EPLI. In Michigan and every other state in the United States, this small business insurance policy handles claims of wrongful termination, hiring, and employment practices and provides coverage for sexual harassment and gender discrimination.
Michigan Business Insurance Costs
Insurance is a contract. The insurer agrees to pay for certain losses, and you agree to pay your premium. But how much the premium costs will vary due to several factors.
In our research for this guide, we obtained a variety of sample quotes from different brokers and carriers. All of the quotes were for companies with three or fewer employees and an annual revenue under $250,000.
Industry | Estimated Monthly Premium | Coverage Type | Coverage Amount |
|---|---|---|---|
Handyperson Service | $45.50 to $154.27 | General liability | $1 million per occurrence; $2 million aggregate |
Photography Service | $49.55 to $57.49 | General liability | $1 million per occurrence; $2 million aggregate |
DJ | $15.84 to $52.29 | General liability | $1 million per occurrence; $2 million aggregate |
Landscaping | $66.83 to $396.33 | BOP | $1 million per occurrence; $2 million aggregate, with $20,000 in property coverage and a $1,000 deductible |
Some of the variables that providers take into account when calculating your premium include:
- The geographic region within Michigan, including the specific county
- Yearly revenue and payroll
- Claims history
- Risk management and training
- Business experience
- Prior insurance history
The quotes we received, while surprisingly high, seem in line with the national trend of increasing insurance premiums. But while rising costs may be the reality, you can still save a few bucks in other ways. Learn the ways to save money on business insurance.
How To Get Michigan Business Insurance
If you’re ready to purchase insurance, there are multiple ways to do so.
Provider
You can always work directly with a provider, or carrier, an insurance company that underwrites and services the insurance policy by investigating and paying claims. You can purchase insurance directly from some carriers, while with others you may need to work exclusively with agents or brokers. Regardless, reaching out to a provider is one way to purchase business insurance in Michigan.
Agent
Working directly with an agent is probably the most common route for purchasing business insurance in Michigan. An agent is someone who works with an insurance company and helps connect the carrier with prospective policyholders. Some agents, called “captive agents,” only sell insurance for one company. Others are independent agents and work with multiple companies.
Broker
Similar to an agent, a broker works on your behalf and not for the insurance company. Usually, a broker will work with many different carriers and provide you with insurance advice while helping you find the best option for insurance.
Many of the quotes above came from different brokers, and the range of prices was surprising. In one instance, a policy costs $800 annually while the same level of coverage from a different provider costs $4,000 annually. Brokers can help you navigate wide-ranging quotes by letting you easily compare them.
Are you confused? Check out our insurance carrier vs broker comparison to learn more about these options.
Michigan Small Business Statistics: Why Insurance Is Important
Michigan, the Great Lake State, has played an important part in the history of American manufacturing. While the big automakers still represent a crucial component in the state’s economy, small businesses make up the majority of Michigan’s employers.
Consider these statistics about small businesses in Michigan, which show just how much of a presence small businesses have in the state[5]:
- Michigan has 908,007 small businesses that represent 99.6% of all of the state’s businesses.
- Small businesses employ 1.9 million people, or $47.3%, of all employees in Michigan.
- In 2021, the largest percentage of businesses exporting goods from Michigan were small businesses, at 88.9%. These businesses exported a total value of $12.1 billion, or 23.1%, of total exports from the state.
Michigan’s economy is strongly supported by small businesses and fosters a healthy environment for them to survive. Between March 2021 and March 2022, 29,561 small businesses opened and 20,402 closed, resulting in a net gain of 9,159 new small businesses during that time frame.
The state’s small businesses trend toward a very small size. Approximately 81% of all small businesses in Michigan are solopreneurs or have no employees. About 16% of Michigan small businesses have fewer than 20 employees, while the remaining small businesses (representing about 3%) employ between 20 and 499 employees.
Excluding businesses designated as “Other Services,” the top-represented small business industries in Michigan are professional, scientific, and technical services (108,656 businesses) and construction (103,531 businesses). Manufacturing is further down the list with 22,247 businesses.
These numbers paint a pretty convincing picture: small businesses in Michigan are a significant part of the state’s strong national and global economy.
Frequently Asked Questions (FAQs)
Yes. In Michigan, workers’ compensation insurance is a required coverage if your business has at least one employee working for a minimum of 13 weeks. Michigan does not have a state-administered workers’ comp program, but you can purchase coverage directly from insurance companies, agents, or brokers.
No, there is no state law requiring liability insurance in Michigan. However, make sure to check whether your municipality or region has a specific general liability requirement. Additionally, many industries require proof of insurance to be licensed.
Yes, with a few exceptions commercial auto insurance is required in Michigan. The required coverages are PIP, residual bodily injury, property damage, and personal property insurance.
Prices can vary significantly depending on carrier and industry. For example, a handyperson in Michigan may pay anywhere from $45 to $154 a month for general liability coverage. Likewise, a landscaper may pay somewhere from $66 to $396 a month for a BOP.
According to the US Small Business Administration’s 2023 profile of Michigan, there are 908,007 small businesses in Michigan. This number represents 99.6% of all businesses in the state.
You can file a complaint with the Department of Insurance and Financial Services online, through email at DIFScomplaints@michigan.gov, mail, fax, or phone at 1-877-999-6442.
Per the 2021 US census, the population of Michigan is 10.05 million. This makes it the tenth-largest state by population.
Bottom Line
From the Ford Motor Company to Motown, Michigan has contributed in many ways to America’s culture and economy. Michigan’s economic success is driven in large part by small businesses. A key aspect of a small business’ success is the quality of its insurance.
Simply Business understands the importance of insurance and makes it simple and affordable to purchase online. In 10 minutes or less, you can compare quotes in real time from top providers, modify coverages, and purchase a policy online or call to speak to one of its agents.
Sources:
[1]US Bureau of Labor Statistics | Injuries, Illnesses, and Fatalities
[2]All of the above information is available on Michigan’s Department of Labor & Economic Opportunity website, under Workers’ Disability Compensation Insurance Requirements.
[3]Michigan Department of Insurance and Financial Services | Choosing PIP Medical Coverage
[4]National Safety Council | Workers’ Compensation Costs
[5]The following statistics come from the US Small Business Office of Advocacy 2023 Small Business Profile for Michigan.
