The Complete Guide To LLC Insurance
When you own a small business, at some point in your growth you may want to protect your personal assets from your business finances. Without proper coverage and a solid business structure, your own assets, in addition to your business assets, might be in danger.
An LLC (limited liability company) is a business structure that protects a business owner from personal liability in the event of a lawsuit, accident, property damage, or a costly mistake. While the LLC business structure works to protect the business owner’s personal assets, obtaining business insurance is the next step in any business’s risk management plan.
In this post, we’ll cover which insurance policies LLCs need, where to find them, and how much they cost.
Table of Contents
What Is LLC Insurance?
LLC Business insurance is a collection of business insurance policies designed specifically to protect your LLC from the costly effects of a lawsuit, property damage, or worker mistakes. There is not a specific LLC insurance policy a business can purchase but rather, several policies bundled together. Most LLC insurance bundles will have a foundation of general liability insurance or a business owners plan (BOP) that contains both general liability and commercial property insurance.
There is no one-perfect fit for each company; different risks equal different policies, and only you and an expert will be able to identify the best choices for your business — but this post should give you a good head start.
Why LLCs Need Insurance
According to the government, up to 53% of small businesses experience a lawsuit — and, out of the businesses that face a lawsuit, over a third of them close their business due to the unforeseen cost. Those are sad statistics, but they don’t have to translate to sad endings for businesses. Insurance exists to protect your business, so you don’t have to lose sleep at night thinking about the worst-case-scenarios for your LLC.
Accidents are bound to happen in life and in business — while there are things you can do to mitigate business risks, some things are beyond your control. Instead of worrying about the various hazards that could befall you, cover your business with insurance policies specific to your business needs. With the proper coverage, if your business is the subject of a lawsuit, these policies will work to protect your personal income and assets from being involved in a business-related accident or mistake.
How LLC Insurance Policies Work
Once you’ve decided to purchase insurance for your LLC, you should sit down with an insurance professional and itemize your business risks. Identifying the risks for your business and its industry can help ensure you get the proper coverage your business needs.
Most policies will start with a general liability policy or a business owners policy (BOP) — that bundles general liability, commercial property, and (sometimes) business interruption insurance. In addition to the foundational policies, there are business insurance policies for your specific risks as well. With an insurance expert, you’ll build upon a general liability policy to create the perfect insurance plan for your LLC.
Types of LLC Liability Insurance
Once you’ve acquired basic general liability insurance as your foundation, here are some of the most common other liability insurance policies that will help provide you with additional coverage.
Commercial Property Insurance
This insurance covers damage to your property because of fire, tornados, hurricanes, vandalism and the like. Strong winds push a tree into your building? Commercial property is the insurance for those claims. Was something stolen from your property or your vehicle? A commercial property policy is what you’d use for those claims, too.
Business Owner’s Policy
This is a policy that combines both general liability and commercial property insurance into a bundle. Sometimes this policy also includes business interruption service. Bundling multiple policies is a cost-effective way to get more coverage for less.
Errors & Omissions Liability Insurance
Many LLCs are formed by professionals in the medical field, and they should add errors and omissions (also known as malpractice insurance or professional liability) to their list of needed policies.
Directors & Officers Liability Insurance
If the directors and officers, or the main shareholders in the company, suffer a financial loss because of a lawsuit brought against them personally, this protects them and helps pay for a legal defense. (Intentional illegal acts are not covered by insurance.)
Professional Indemnity Insurance
Do you give any sort of advice as part of your business? Protect yourself from lawsuits directly related to bad advice that caused financial or personal damages to a client.
Product Liability Insurance
General liability insurance will cover some, but not all, lawsuits related to product liability. However, if your product is risky, extra product liability insurance is a must.
Cyber Risk Insurance
A data breach is a risk every business with an online presence (especially an online store) might face. If data is comprised, there are lengthy consumer rules to follow and cyber risk insurance will help pay for legal fees and facilitate the complicated process for you.
In most states, you need worker’s compensation to cover employee injuries. Texas is the lone hold-out with zero worker’s compensation guidelines, but all other 49 states have rules where you must provide worker’s compensation if you have employees.
Business Interruption Insurance
If your business has to close because of a disaster or accident, business interruption insurance will cover your lost income or the costs of temporary relocation. This policy could even protect you if a property leader suffers damage or foot traffic is limited to your establishment.
Other Insurance Policies LLCs Need
In addition to the liability policies above, you might need to add other coverage depending on the scope of your business. Here are some additional insurance policies that you may want to purchase in addition to liability insurance.
Commercial Auto Insurance
If your business has a company vehicle or uses business vehicles to transport goods and services, you might need to expand your auto insurance to include commercial activity. With commercial auto, you are covering your employees to drive an employee vehicle and also covering their car during business hours.
Home-Based Business Insurance
If you operate your business out of your home, consider specialized insurance plans to make sure your business is protected should something happen to your residence. Home owner’s or renter’s insurance may not be enough to cover business losses in the event of a fire, natural disaster, or theft.
How Much Does LLC Insurance Cost?
It’s hard for many business decisions not to come down to cost.
For general liability insurance, the cost is affordable and within range for even small businesses with current low income. According to Insureon, over 53% of small businesses pay between $400-$600 a year for general liability insurance and 21% paid less than $400 a year.
Some of the things that may affect that yearly premium are:
- Your specific industry risks
- How much liability insurance you need
- What type of business you run
- The size of your business
- How many employees you have
- The location of your business
For a small business that needs one million dollars of coverage, the price can be as low as $30 a month — a small price to pay for protection and peace of mind. Cheap liability insurance is possible and should be a convincing argument to start with a basic plan at minimum.
Once you’ve acquired the foundational insurance, everything after that is an addition. For a business owners policy (BOP), according to Coverhound, a one million dollar policy could cost you between $500-$3,500 a year. Worker’s compensation could add another couple thousand to your yearly costs depending on how many workers you employ.
The process for finding a great policy is all about research! Knowing the averages for your industry and comparing competing rates will help you make the best decision for your LLC. Start with an idea of the risks your LLC might face. Are you just online? You will have a lower premium than someone with a storefront. Will you need malpractice insurance? Do you need to insure commercial vehicles? By asking and answering these questions, you can come equipped to your first meeting with an insurance company with the knowledge of what you need.
When you meet with your insurance expert, discuss the cost-effectiveness of bundling your policies. Many sites like Coverwallet, Coverhound, and Insureon will comparison shop for you and walk you through the steps required to make an insurance purchase.
Your business needs protection. Don’t make the mistake of under-insuring your business out of optimism or denial and become one of the 33% of businesses that can’t recover from financial ruin after a costly mistake or accident. Protect yourself, your business, and your employees today.