Do LLCs Need Insurance? Types & Cost

If you’ve already established your business as a limited liability company (LLC), you might be wondering if that’s enough. After all, an LLC separates your personal assets from your business ones. But is it necessary to go the extra mile and obtain LLC insurance?

Business insurance is a wise investment. Certain types of coverage are essential for all businesses, regardless of whether you’re a freelancer starting your own business or the CEO of a construction company. Here’s a closer look at why your LLC may require business insurance, regardless of its size, along with the most common types of coverage available.

What is LLC Small Business Insurance?

LLC small business insurance refers to various coverage types designed to protect your business assets. For instance, liability insurance is a crucial type of coverage. It safeguards your LLC against problems such as accidental property damage and injuries caused to others, such as a customer who trips and falls while shopping in your store.

You have the option to choose from several different small business coverage types. Select the coverages that best suit the needs of your LLC. For example, if you use a car for business purposes, you can purchase a commercial auto insurance policy.

Even with an LLC, having small business insurance is important. While the LLC structure protects your personal assets from lawsuits, it leaves your business assets completely exposed unless you have proper coverage.

Do You Need LLC Small Business Insurance?

LLC small business insurance is a must-buy in high-risk industries like agriculture, construction, and manufacturing. However, even in low-risk industries such as freelancing, bookkeeping, and home-based businesses, LLC insurance is strongly recommended. The three most common insurance needs that all businesses have are general liability insurance, commercial property insurance, and workers compensation insurance.

The future is uncertain, and you never know when your laptop might be stolen, an artist may sue you for copyright infringement, or a client may take you to court for breaching a service contract.

“Many businesses operate for years without being sued, but if you are sued, the payments requested by attorneys can be catastrophic,” says Nelson.

Think of it this way: if you don’t have the money to replace expensive equipment or fight a lengthy court battle, you need some type of LLC small business insurance, even if it’s just a professional or general liability policy.

What’s Covered by LLC Small Business Insurance?

At its core, LLC small business insurance protects your business from financial losses in the event of an accident. Coverage will vary based on the types of coverage you choose to purchase.

Here are some of the main types of small business insurance:

Business owners policy for LLCs

Think of a business owners policy (BOP) as a bundled insurance package for small businesses. It is particularly suitable for LLCs as it covers some of the most common risks you may face, including property damage and liability.

A BOP typically includes:

  • General liability insurance: This coverage protects against accidental injuries and property damage to others. It also covers legal costs, judgments, and settlements if you’re sued.

“If your LLC has vendors or customers—or if you lease or own property—general liability insurance is highly recommended,” says Dana Beck, Chief Underwriting Officer, Small Commercial, at Travelers. “In fact, vendors and landlords often require it.” However, there are differences between standalone general liability insurance and a business owners policy.

  • Commercial property insurance: As an LLC, you likely have some business property, whether it’s office furniture, equipment, or inventory. If that property is damaged or destroyed by a problem covered by your policy, such as a fire, commercial property insurance can help you repair or replace it.

  • Business interruption insurance: This coverage helps your LLC stay afloat if you have to temporarily close your doors due to a problem covered by your policy. For instance, if a severe storm damages your office and you must close for two weeks while repairs are made, business interruption insurance can help cover the cost of rent at a temporary location, employee salaries, and other necessary expenses.

Other types of business insurance for LLCs

While BOPs are a great starting point, they aren’t the only type of business insurance your LLC may require. In addition to a BOP, you may want to consider one or more of these coverage types, depending on your situation:

  • Commercial auto insurance: Your personal car insurance policy most likely excludes coverage for business use. This means you’ll need to purchase commercial auto insurance if you or your employees use your vehicle for work-related purposes.

  • Workers compensation insurance: If you have at least one employee, you’re required to have workers compensation insurance in most states. This type of insurance helps cover the cost of medical bills, lost wages, and other expenses associated with workplace injuries or illnesses.

  • Professional liability insurance: Also known as errors and omissions insurance, this type of policy is vital for any LLC that provides professional services, such as consulting, accounting, or financial planning. It helps cover the cost of claims against professional mistakes.

“Even if you’re doing everything right, people make mistakes,” says Paige Nelson, Director of Product Development at Acuity Insurance. “If you’re a contractor and install the wrong flooring, it didn’t cause any damage, but it still needs to be replaced. This coverage would pay for that error.”

  • Product liability insurance: If your LLC manufactures, creates, distributes, or sells physical products, then product liability insurance is a good coverage type to have. It can help cover the cost of litigation if your products cause property damage or injuries to someone else.

How Much Does LLC Small Business Insurance Cost?

On average, a business owners policy costs $57 per month, with 12% of business owners paying less than $33 per month, according to Insureon.

The cost of LLC small business insurance will vary depending on factors such as:

  • Your type of business.
  • The size of your business.
  • Location of your business.
  • Number of employees.
  • Payroll.
  • Business assets.
  • The years of experience of your business.
  • The amount of coverage you buy.
  • Your insurance deductible amount.
  • Your insurance claims history.

How Do I Get LLC Small Business Insurance?

You can find affordable small business insurance for your LLC in a few steps:

  • Determine how much coverage you need. A business owners policy is an excellent starting point. You can add additional coverage types as necessary.
  • Shop around. Compare business insurance quotes from multiple insurance companies. You can shop online or speak with an independent insurance agent who specializes in small business insurance.
  • Bundle policies. You may need multiple coverage types to cover all the bases for your LLC. Typically, purchasing multiple policies from the same insurance company will save you money.
  • Manage your LLC’s risk. You may be eligible for discounts if you take steps to mitigate your LLC’s risks, such as installing security alarms, creating a safe workspace, reducing your exposure to cyber threats, and developing an employee handbook.

To obtain the most accurate small business insurance quotes, ensure you have all your LLC information ready, such as:

  • Your contact information.
  • Your business location, address, and details.
  • The type of business you operate.
  • Your estimated business revenue.
  • The number of employees you have.

Once your policy is in place, consider reassessing your risk at least once a year or anytime your business liabilities change. For example, expanding the types of services you offer, moving to a new location, or hiring more employees could necessitate adding more coverage to your policy.

For more information on small business insurance and to find the best coverage for your LLC, visit ATICE.INFO.