Limited Liability Company (LLC) insurance is an essential part of protecting the business youâve worked so hard to make successful. Business insurance for LLCs helps protect you against incidents related to operating your company. Without it, you must pay out of pocket for things like business property damage, employee and customer injuries, theft, lawsuits, and more, which can be very expensive.
This article answers frequently asked questions about LLC business insurance.
What Is LLC Insurance?
LLC insurance helps protect businesses from liability claims, including bodily injury or property damage, related to your business.
Many small businesses are structured as LLCs. This separates business assets from your personal ones. If youâre sued for business reasons or default on company debt, itâs less likely that your personal money, investments, or property could be seized as an LLC. However, it doesnât protect your business from many of the risks it faces. LLC insurance can help pay expenses related to these risks. In some circumstances, LLC business owners may be required to purchase certain coverages.
Do I need business insurance for my LLC?
Itâs a smart idea to have business insurance for your LLC. Without coverage, you have to pay out of pocket to cover costs for business-related personal injuries, property damage, theft, and more. Most small business owners cannot cover these unexpected costs, which are often large enough to put them out of operation. The specific coverage you need depends on the type of small business you run and the risks it faces.
Be aware that many LLCs may be required to have certain types of business insurance. For instance, most states require businesses with employees to carry workersâ compensation insurance. Most landlords and lenders make you get commercial property insurance if you rent a business location from them or take out a business property loan.
If you work in certain professions like medicine, you may need to get professional liability insurance, which:
- Covers you if you or someone who works for you makes a mistake providing business services and someone is harmed.
- Pays legal and settlement costs if a client sues you over a professional error.
- Reduces the risk of losing personal assets if you are found liable for harm caused while providing professional services.
If youâre not sure what insurance protection you need, consult with a business insurance agent or company representative.
What does LLC insurance cover?
LLC insurance provides coverage to help protect your business from financial losses. Two essential types of coverage for most LLCs are general liability and professional liability insurance.
Professional Liability Insurance for LLCs
Mistakes can happen at even the most by-the-book limited liability company. And those mistakes can be costly, especially if youâre sued. Thatâs why itâs critical to get adequate professional liability (also known as errors and omissions insurance or E&O) protection for your business. It helps cover you and your LLC if a customer sues you for making a mistake in the professional services you provide.
Example: Imagine that you own an accounting business and you make a math mistake. The error causes your client to pay thousands of dollars in fees and penalties. They sue your company over the incident. Professional liability insurance can help cover your legal and settlement costs.
General liability insurance for LLCs
General liability insurance policies, often referred to as business liability insurance, protect you if someone other than an employee is injured on your business property, or you damage someone elseâs property while conducting business. If you donât have this coverage, youâd have to pay for medical costs and to replace or repair property out of pocket, which can be costly.
Little known fact: General liability insurance will cover legal and settlement costs if youâre ever sued for libel or slander or over certain types of advertising errors.
Example: If a customer slips and falls on a wet floor at your business location and breaks an ankle, general liability coverage will help pay his medical costs resulting from the incident.
Example: While an employee is making a delivery to a clientâs house, she breaks an expensive vase. Your general liability policy will pay to repair or replace the vase.
What other types of insurance do LLCs get?
Many limited liability company owners purchase the following coverages to meet their insurance needs:
- Workersâ compensation insurance. Most states require businesses with employees to carry workersâ comp. It provides your employees with benefits to help them recover from work-related injuries and illnesses. Benefits include medical payments, disability, job retraining, and much more.
- Commercial auto insurance. This coverage pays for property damage or medical expenses if you or an employee is involved in a car accident while driving for work purposes. Be aware that personal auto insurance wonât pay up if youâre involved in an accident while on the job, for instance, when making a delivery, picking up supplies, or heading to an appointment.
- Commercial property insurance. This policy pays for damage to your business property, including its contents, if itâs harmed by an extreme weather event, fire, or vandalism. It also covers losses resulting from theft.
- Business income coverage. This insurance, often referred to as business interruption insurance, pays a portion of your lost income if your business canât operate because of covered property damage.
- Umbrella insurance. Many LLCs that face significant risks purchase an umbrella policy to provide additional coverage on their other types of insurance.
Consult with an experienced business insurance professional to go over your coverage options to determine all the protection required to meet your business needs.
How much does LLC business insurance cost?
Insurance costs vary because every small business is different and has unique coverage needs. Insurance companies look at various factors to determine a businessâ LLC insurance cost. This can include your:
- Industry. Companies in specific industries face more significant risks than others. For instance, construction companies will likely pay more for business insurance coverage than consulting firms. Coverages like workersâ comp, professional liability, and general liability are heavily impacted by industry risk.
- Number of employees. The more employees you have, the more youâll likely pay for insurance. Coverages like workersâ compensation and professional liability are influenced significantly by your number of employees.
- Payroll. Costs for certain types of insurance depend on your LLCâs payroll. Workersâ compensation insurance, for example, uses payroll as a factor for calculating premiums.
- Claims history. A business with a clean claims history likely operates in safe and sensible ways. This can result in a lower insurance cost. Companies that have made claims in the last three or five years will pay more for insurance.
- Coverages and policy limits. The more insurance you carry, the more it will cost. Thatâs why itâs essential to consult with an experienced business insurance agent to ensure youâre getting the right coverage for you at the best possible price.
- Deductibles. The deductible is the amount you must pay out of pocket before your insurance coverage kicks in. The higher the deductible, the less youâll pay for insurance. However, you must always have enough saved up to pay your deductible, or it could have a negative impact on your business.
Another big factor that impacts business insurance prices is the insurance provider and their policy underwriting practices. The same insurance from different companies could come with vastly different prices.
How can I lower the cost of my LLC business insurance?
The best way to lower your LLC insurance cost is to reduce risks. If possible, take advantage of risk-reduction programs offered by most business insurers. They will help you create a safer workplace, implement more secure work practices, provide tips on how to drive safely, and more.
Here are a few additional ways limited liability company owners can save on the cost of small business insurance:
- Bundling insurance policies. You can save money on your business coverage by bundling the protection you need into a single policy. The simplest way to do this is to purchase a business owners policy(BOP) which combines commercial property and general liability insurance in a single cost-effective package. Many insurers also include business income coverage in a BOP. A BOP makes it easy to add other coverages at a lower cost.
- Pay your entire premium upfront. Most insurers allow you to pay your premium monthly or quarterly. However, paying the whole premium at once can get you a discount on your business insurance coverage.
- Get business insurance quotes from several providers. It will allow you to compare coverages and costs to find the best deal. Itâs also vital to get quotes from different insurers at renewal time to ensure your current business insurance company is still giving you the best package at the lowest cost.
Leveraging all the information in this article will help you get the right LLC business insurance policies to protect your operation.
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