If you're running a property management business in Texas, understanding your insurance requirements can feel like navigating a maze. Here's what makes Texas unique: it's the only state in the country where workers' compensation insurance is optional. That sounds like a win for business owners, right? Well, not so fast. Optional doesn't mean unnecessary, and there are other insurance requirements and practical considerations that could make or break your business.
Whether you're managing a handful of single-family rentals or a portfolio of commercial properties, the insurance landscape in Texas has some specific rules you need to know. Let's break down what's legally required, what's practically necessary, and how to protect your business without overpaying.
Texas Real Estate Licensing and E&O Insurance
Here's something that trips up a lot of property management companies: if you operate as a business entity like an LLC or corporation, the Texas Real Estate Commission has specific insurance requirements tied to your designated broker. The rule is straightforward but critical—your designated broker must either own at least 10% of the business entity or carry $1 million in errors and omissions insurance.
This isn't just a one-time requirement. Every two years when you renew your business entity real estate broker license, you'll need to submit proof of ownership or E&O insurance. The purpose? It guarantees financial security for your clients and legal protection for your business. If a tenant or property owner claims you made an error that cost them money—maybe you failed to enforce a lease provision or mishandled security deposits—E&O insurance covers your legal defense and any settlements.
Most property management companies find it simpler to carry the E&O policy rather than restructure ownership. At around $1,200 to $3,000 annually for a $1 million policy, it's a small price for significant protection and compliance.
Workers' Compensation: Optional But Risky to Skip
Texas's approach to workers' compensation is unusual. While 49 other states mandate coverage, Texas lets private employers decide. For property management companies, this means you can legally operate without workers' comp insurance. But here's the catch: if you don't carry coverage, you lose the legal protection it provides against employee lawsuits.
Think about your team. Maybe you have maintenance workers who climb ladders, repair HVAC systems, or handle electrical issues. Leasing agents drive between properties. Office staff can slip on wet floors. If someone gets hurt and you don't have workers' comp, they can sue you directly for medical bills, lost wages, and pain and suffering. With workers' comp, those lawsuits are generally blocked—the insurance becomes their sole remedy.
The cost is reasonable for most property management companies. In 2025, the average rate is about $2.48 per $100 of payroll, which translates to roughly $44 monthly per employee. For a small team of five employees, you're looking at around $220 per month for protection that could save you from a six-figure lawsuit.
If you choose to go without coverage, you must file DWC Form-005 with the Texas Department of Insurance Division of Workers' Compensation every year between February 1 and April 30. You're also required to report any work-related injuries that result in more than one day of lost time, as well as all work-related illnesses and deaths. Skip these filings and you face penalties.
One critical exception: if you contract with government entities, workers' comp becomes mandatory for employees working on those projects. Many property management companies that handle government housing or municipal contracts discover this requirement the hard way.
General Liability Insurance: Not Required by Law, But Essential in Practice
Texas doesn't mandate general liability insurance for property management companies. However, try operating without it and you'll quickly run into walls. Most commercial property owners won't sign management agreements without proof of coverage. Landlords routinely refuse to contract with management companies that can't provide a certificate of insurance. Many city contracts explicitly demand it.
The standard coverage recommendation is $1 million per occurrence with a $2 million aggregate limit. This protects you if someone is injured at a property you manage and decides to sue. Maybe a tenant trips on a broken step you were supposed to repair, or a visitor slips in a poorly maintained common area. General liability covers your legal defense and any settlements or judgments.
Contract requirements often specify minimums. Many property owners require at least $1 million in combined limits per occurrence. Some larger portfolios or commercial properties push that to $2 million or higher. Review your management agreements carefully—falling below the required coverage can void your contract and leave you personally liable.
The cost varies based on your company's size, the number of properties you manage, and your claims history, but expect to pay between $500 and $3,000 annually for a solid policy. It's one of those expenses that feels unnecessary until you need it—and then it's priceless.
Additional Coverage to Consider
Beyond the core requirements and practical necessities, consider these additional coverages that many Texas property management companies find valuable. Commercial auto insurance is essential if your team uses vehicles for property inspections, maintenance runs, or showing units. A cyber liability policy protects you if tenant data is breached—increasingly important as more management functions move online.
Business owners policy (BOP) coverage bundles general liability with property insurance for your office, equipment, and business interruption coverage. For many small to mid-sized property management companies, a BOP offers better value than purchasing each policy separately.
How to Get Started with the Right Coverage
Start by reviewing your business structure and licensing. If you're operating as a business entity, verify whether your designated broker owns 10% or more. If not, securing that $1 million E&O policy should be your first priority—you can't legally operate without meeting this requirement.
Next, carefully read through your property management agreements and contracts. Note any specific insurance requirements spelled out by property owners or in your leases. These contractual obligations will guide your minimum coverage levels for general liability.
Make a decision on workers' compensation. Consider the size of your team, the nature of their work, and your risk tolerance. If you have maintenance staff or anyone doing physical work, the modest cost of coverage is almost always worth the lawsuit protection. If you decide against it, mark your calendar for the annual DWC Form-005 filing deadline.
Work with an insurance agent who understands property management businesses in Texas. They can help you bundle policies, find competitive rates, and ensure you're not overpaying for coverage you don't need or undercovered in areas that matter. The right insurance setup protects your business, keeps you compliant, and gives property owners the confidence to trust you with their investments.
