LLC Insurance: How Much You Need & What It Should Cost

Limited liability company (LLC) insurance refers to policies business 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 $3,500 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.

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How LLC Insurance 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 coverages to be fully protected.

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.

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 to cover the costs.

Types of Liability Insurance 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 even 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

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 you defamed them in a radio interview

Most general liability policies also have products-completed operations coverage to pays 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.

Workers’ Compensation Insurance

LLCs that have staff most likely need workers’ compensation insurance to cover the costs of workplace accidents, like injured employee’s 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 four or more employees
• 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 are not required to carry workers’ compensation

You want to 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.

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 vehicle for work. Liability insurance, which is required in many states, is just 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 does not carry enough insurance

LLCs owners who regularly drive their personal auto for work still need commercial auto insurance because their personal auto personal most likely excludes business driving.

Picking the right policies for your LLC can be daunting, which is one reason using a broker like CoverWallet 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.

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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.

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.

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 then if they purchased these coverages separately.

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.

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, it does not extend coverage on professional liability insurance. To increase professional liability limits, LLC owners need to work with their provider.

Top LLC Insurance Providers

Small business insurance companies have target industries—essentially, businesses they prefer offering coverage to. As a result, some LLC owners find working with online insurance brokers a more convenient way to get coverage. Brokers can assess their risks, determine their coverage needs, and point them towards the carriers that cover them.

CyberPolicy

CyberPolicy is an online property and casualty (P&C) platform that partners with many top-rated carriers, such as Nationwide and Liberty Mutual, to bring insurance solutions to small business owners. The platform delivers fast rates on general liability, professional liability, workers’ compensation, and commercial auto insurance, and applications to see quotes from multiple carriers. This makes it ideal for business owners who need insurance quickly but still want to compare offers.

Insureon

Insureon is an online small business insurance agency that makes it easy for LLC owners to comparison shop. The online application takes longer to complete than most online insurance providers, but it often provides multiple accurate quotes. This makes Insureon a great choice for LLC owners looking to save money on their insurance. Most business owners save 10% to 20% when they shop with Insureon, and many find their quotes match their final premium.

The Hartford

LLCs with employees should consider getting quotes from The Hartford to take advantage of its pay-as-you-go workers’ compensation plan, XactPAY Payroll Billing. By charging a monthly premium based on an LLC’s actual payroll as opposed to an estimate, The Hartford minimizes the chance of LLC owners overpaying or underpaying for workers’ comp. Moreover, the carrier partners with 170 payroll service providers, including QuickBooks, so most LLC owners can also set up automatic payments.

CNA

LLC owners who provide professional expertise should work with CNA. The carrier is the national leader for professional liability, or errors and omissions insurance, and can offer coverage to traditional professionals like doctors and lawyers, as well as quasi-professionals, such as business consultants, travel agents, and graphic designers. LLC owners can get policies with limits up to $5 million.

Embroker

Embroker is another online insurance brokerage that delivers fast quotes and allows LLC owners to purchase coverage immediately. However, its standout feature is insurance for startup companies backed by venture capital funds. These LLCs can get premium credits of up to 25% on essential policies. Plus, Embroker offers broad liability insurance for LLCs in the tech industry, including a unique errors and omissions policy that includes breach of contract claims.

LLC Insurance Costs

Your LLC insurance cost is the total of all the policies your business requires. Most businesses pay between $350 to $3,500 per year for BOPs. However, business owners in some industries may need professional liability insurance, and that can cost between $500 to $5,000 annually, so those businesses have higher insurance costs.

LLC Insurance Costs & Deductibles by Policy

Insurers look at several factors to determine premiums. These can vary by policy, but some of the characteristic insurers typically consider include:

• Industry: LLCs in some industries have a great 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. 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.

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.