What Is LLC Insurance Coverage & How Much Does It Cost?
Nancy Fernandez is a Credit Card and Insurance Expert at Fit Small Business, specializing in business credit cards and business insurance.
Limited liability company (LLC) insurance refers to policies LLC owners buy to protect their business assets. Different policies protect against different risks, but LLC insurance typically includes coverage for a business’s liability and its property. Most LLCs can combine these coverages in a business owner’s policy (BOP) that costs between $350 to $900 per year, depending on the industry.
Like any small business, an LLC usually needs multiple policies to protect against business losses. To make buying insurance easier, reach out to a reliable insurance broker like CyberPolicy. It simplifies shopping for insurance by allowing business owners to compare policies from top carriers. Check out CyberPolicy to find proper coverage fast.
Why Do LLCs Need Insurance?
LLC owners, typically called members, sometimes assume their business structure guards against loss and, in some ways, they’re right. Choosing to be an LLC separates your business and personal assets. This way, if a client sues your business and wins, your personal savings are safe. Your business assets, however, aren’t safe.
Let’s say your biggest client claims a mistake you made cost him thousands of dollars. Whether or not you made a mistake, you still have to defend yourself and possibly pay a settlement or court award. The expense comes out of your business’ accounts unless you have LLC insurance coverage to pay these costs.
How LLC Insurance Coverage Works
LLCs need insurance to cover the possible losses that could affect the company. These losses can come from many different sources, including:
- Lawsuits from customers for physical injury or property damage
- Clients’ accusations of negligence
- Damage to expensive business-owned property
- Medical bills for employees’ workplace injuries or illnesses
Unfortunately, you can’t just buy one policy to get all the necessary protection. A different policy covers each risk, so most LLCs need multiple policies to be protected fully.
LLC Insurance Costs
Your LLC insurance cost is the total of all the policies your business requires. Most businesses pay between $350 to $900 per year for BOPs. However, LLC owners in some industries may also need professional liability insurance, which usually costs between $800 to $2,000 annually, as well as other policies like commercial auto or cyber liability insurance. Those LLC have higher total insurance costs.
LLC Insurance Costs & Deductibles by Policy
Insurance Type | Estimated Annual Premium | Coverage Amount | Deductible |
|---|---|---|---|
BOP | $350 to $900 | $1 million per occurrence/$2 million aggregate | $500* |
Professional Liability Insurance | $800 to $2,000 | $1 million per occurrence/$2 million aggregate | $500 to $1,000 |
Commercial Auto Insurance | $2,000 to $4,500 per vehicle | $1 million per occurrence/$2 million aggregate | $500 to $1,000 |
*Business property deductible
Insurers look at several factors to determine premiums. These can vary by policy, but some of the characteristics insurers typically consider include:
- Industry: LLCs in some industries have a greater chance of being sued for negligence. For instance, physicians have a high risk for malpractice lawsuits, so their professional liability premiums are higher than LLCs in other industries.
- Employees: Hiring staff often means adding workers’ compensation premiums to your overall costs, but it can also increase your commercial auto, professional liability, and general liability insurance premiums.
- Claims history: If you made claims in the past, your insurer might increase your premiums because it sees you as a riskier business to insure.
- Deductibles: Some policies require insureds to pay a certain amount, called a deductible, when they file claims. Selecting a higher deductible typically lowers your premium.
Liability insurance for LLCs can be expensive, but insurers often give discounts for buying multiple policies. Getting all of your policies from one carrier may also reduce the chance of coverage gaps. Meanwhile, LLC owners might also save by using different carriers that specialize in various policies.
Every situation is unique, which is why LLC owners should work with an insurance professional who has experience in their industry and has access to the top LLC insurance providers.
Essential Liability Insurance Coverage for LLCs
For many LLCs, liability insurance is the key concern because almost anyone the business comes into contact with represents a potential lawsuit, including customers, vendors, employees, and delivery people. The most common lawsuits LLCs face are covered by general liability. Depending on its industry and operations, an LLC might need other liability coverages like professional liability insurance or workers’ compensation.
Most Common Liability Insurance Policies for LLCs
Type of Insurance | What it Covers |
|---|---|
General Liability | Third-party claims of bodily injury, property damage, and reputational harm |
Professional Liability | Third-party claims of professional negligence, errors, and omissions |
Workers’ Compensation | Required in most states to cover medical bills, rehabilitation costs, and lost wages for injured employees |
BOP | Combines general liability, commercial property, and business interruption into a single cost-efficient policy |
General Liability Insurance
General liability insurance is a policy that covers some of the most common business risks, namely third-party injuries, property damage, and reputational harm. If your LLC is accused of causing any of these, your general liability insurance typically pays for the injured party’s medical costs or property repairs or your legal fees if they decide to sue. For example, general liability usually covers:
- A delivery driver’s injury in a slip-and-fall on your property
- A customer’s shattered window if your employee broke it
- A competitor’s claim that you defamed them in a radio interview
Most general liability policies also have products-completed operations coverage to pay for property damage and bodily harm caused by defective products, such as exploding electronic cigarettes for a retailer or a poorly constructed staircase for a carpenter.
Professional Liability Insurance
LLCs that provide professional services or advice typically need professional liability insurance to cover claims arising out of their work, such as:
- A lawyer being sued after missing an important court deadline
- A doctor being sued for an incorrect diagnosis
- An architect being sued for miscalculations that cause a wall to collapse
If a client claims your service caused their financial loss, professional liability insurance covers the cost of your legal defense.
Picking the right policies for your LLC can be daunting, which is one reason using a broker like CyberPolicy is a good idea. Its site has a tool that shows you what policies other businesses in your industry typically purchase and a chat feature that connects you to an insurance professional.
Workers’ Compensation Insurance
LLCs that have staff most likely need workers’ compensation insurance to cover the costs of workplace accidents, like injured employees’ medical bills and lost wages. However, some states have specific rules for LLC owners. In some cases, this may mean LLC members are exempt from workers’ comp requirements.
States with specific workers’ comp rules for LLCs include:
- Alabama: LLC members are counted as employees, and workers’ comp is required when there are five or more employees, regardless of whether they’re full-time or part-time.
- Alaska: LLC members with 10% ownership or more are exempt.
- Colorado: LLC members may choose to exclude themselves.
- Connecticut: Members in a multimember LLC are included automatically but may opt-out; single members aren’t required to carry workers’ compensation.
Check with your local workers’ compensation board to find out the specific requirements in your area. The United States Department of Labor provides helpful resources for determining the appropriate authorities in your state.
BOP
A BOP combines general liability and commercial property as one single policy, covering the most common risks incurred by businesses. Aside from general liability and property coverages, BOPs also cover business interruption, making them a viable insurance policy for LLCs. Getting a BOP will be cost-efficient, especially for those who are just starting their business.
Other coverages that can be offered as a rider to BOPs include professional liability insurance, inland marine insurance, cyber liability insurance, and more. For more information about BOPs and the insurance providers we recommend, check out our article on BOP Insurance.
Additional Types of LLC Insurance
Business insurance is never a one-size-fits-all purchase, and that’s especially true for LLCs. Your industry and unique operations can mean you need additional coverage, so you may want to consider these other types of LLC insurance:
Directors’ and Officers’ Insurance
LLCs aren’t required to have a board of directors, but those that do may want to investigate directors’ and officers’ (D&O) insurance. This policy covers lawsuits brought against board members over their managerial decisions. Allegations covered include:
- Breach of fiduciary duty
- Failure to comply with regulations or company bylaws
- Misuse of funds
- Harassment, wrongful termination, and other employee complaints
- Theft of intellectual property
Many LLCs purchase D&O coverage as a way of attracting board members. Without this policy, board members would have to cover their legal defense on their own, and that risk would make serving on a board unattractive.
Cyber Liability Insurance
Technology-based LLCs and LLCs that store private client information, such as credit card numbers or email addresses, may need cyber liability insurance to pay for data breaches. Policies can cover several costs, including client notification, credit monitoring, goodwill public relations (PR) campaigns, investigation costs, and fines levied by regulatory agencies.
Commercial Property Insurance
Commercial property insurance covers damage to your LLC’s physical assets. These assets may include your building, if it’s owned by the LLC, and your business personal property, such as office equipment, inventory, fixtures, and furniture. If these are damaged by covered events, then your property insurer pays the insured amount minus your deductible. Covered events in commercial property policies often include:
- Fire
- Theft
- Hail
- Vandalism
- Windstorms
LLCs that rent business space can get commercial property insurance for their business personal property only. Any damage they cause to the leased property typically is covered by general liability insurance.
Pro tip: One way to get commercial property insurance is to bundle it with your general liability in a BOP. Most small businesses qualify, and they usually spend less on BOPs than if they purchased these coverages separately.
Umbrella Liability Insurance
Umbrella liability insurance is a policy that extends the coverage of underlying liability insurance. When a claim hits the limit on an underlying policy, umbrella insurance pays the remaining costs up to the umbrella policy’s limit. For example, if a customer’s slip-and-fall ends up costing $250,000 in legal fees and medical bills, but your general liability limit is $150,000, then your umbrella covers the remaining $100,000.
Umbrella policies extend coverage on many liability policies, including general liability and commercial auto. However, they don’t extend coverage on professional liability insurance. To increase professional liability limits, LLC owners need to work with their providers.
Commercial Auto Insurance
LLCs that own or use vehicles for their business need commercial auto insurance in case they, or their employees, cause an accident while operating a work vehicle. Liability insurance, which is required in many states, is one of many coverages LLC owners can buy to protect their businesses. Other commercial auto coverages include:
- Hired and nonowned auto: Covers your liability for damage to vehicles your LLC rents, hires, or borrows
- Collision: Covers damage to business-owned autos caused by an accident
- Comprehensive: Covers damage to business-owned autos caused by something other than an accident, such as extreme weather or vandalism
- Uninsured/underinsured motorist: Covers your injuries and damage to business-owned vehicles if the at-fault driver doesn’t carry enough insurance
LLCs owners who regularly drive their personal auto for work still need commercial auto insurance because their personal auto policy most likely excludes business driving.
Bottom Line
Buying insurance is important when you own an LLC because, like any other business, yours is vulnerable to losses. Make sure you obtain the necessary coverage so that your company is protected in case something goes wrong. Getting covered gives you peace of mind and ensures that a simple accident or natural disaster doesn’t force your business to close its doors permanently.
