In Illinois, small business owners play a key role in providing employment and contributing to the economy of the state. Illinois small business insurance requirements are workers’ compensation and commercial auto, with some exceptions for when other coverage may be required. However, owners need to take into account the type of business and the risks they carry to determine which other coverages, while not required, are vital to the success of their business.
Illinois Business Insurance Requirements
The two main Illinois business insurance requirements in Illinois are workers’ compensation and commercial auto.
1. Workers’ Compensation
The state of Illinois requires employers to offer workers’ compensation insurance. Workers’ compensation insurance covers medical bills for employees who are injured or become ill because of their work and disability benefits for the employees while they are off of work.
Most Illinois business insurance companies offer a return-to-work plan to help you and your employee get back on the job. Programs like this help limit the time you are without the employee and keep the cost of the claim lower.
The threshold for this requirement is very low in Illinois: it is mandatory for any business with one part-time or full-time employee.
The state of Illinois does allow some exceptions to this rule:
- Sole proprietors
- Limited liability company (LLC) members
- Corporate officers
- Business partners
However, like all types of insurance rules, there are exceptions to the exceptions. If the industry is hazardous, then the above roles may still need to purchase workers’ compensation.
Regardless of if it is required, it makes sense to carry workers’ comp. In 2022, there were a total of 102,000 workplace incident reports for nonfatal injuries. This places Illinois among 10 states that each have an incident rate similar to the national incident rate.
There is also the cost of not carrying workers’ compensation. Aside from the obvious risk of exposing your business to litigation, in Illinois, the government can fine your business a minimum of $500 a day for not carrying workers’ comp.
2. Commercial Auto
Illinois small business owners who own a vehicle or fleet of vehicles are required to carry commercial auto insurance. In Illinois, the minimum liability coverage that your business is required to carry $20,000 in property damage per loss. You must also have $25,000 per person and $50,000 per incident in bodily injury coverage.
Illinois also requires businesses to carry uninsured motorist coverage. The required minimum limit for uninsured motorists is $25,000 per person and $50,000 per loss.
These coverages are for liability. When considering commercial auto, it is helpful to compare it to a business owner’s policy (BOP). While a commercial auto policy can be liability only, it can carry coverage for occupants, pedestrians, vehicles, and property involved in a loss. It can also have some additional options, such as roadside assistance.
Illinois does not have any statewide mandate for general liability insurance. However, the Illinois Department of Insurance does recommend you check with local municipalities for requirements. Importantly, many licensing boards for trade industries will require proof of liability insurance.
This list isn’t comprehensive, so check with local requirements in your area:
- Daycares must carry a minimum general liability policy with a minimum amount of $300,000 per occurrence.
- General contractors must carry general liability insurance with $1 million per occurrence and $2 million aggregate and a contractor’s bond of at least $20,000.
Illinois also has a dram shop law on the books, meaning your business can be held liable for a loss directly related to alcohol being served, manufactured, or distributed by your business.
A common situation where you can expect to need general liability insurance for a small business in Illinois is when you are bidding on a project, renting a space, or participating in an event. In any of those situations, you will usually need a certificate of insurance (COI) showing you have general liability in the state.
General liability in Illinois has broad coverage for your business from third-party claims and is focused on three areas:
- Bodily injury.
- Property damage.
- Personal and advertising injury.
Similar to other states, Illinois general liability insurance often includes additional coverages. Some examples are product liability for losses from a product you manufactured or helped distribute and insurance for the damage caused to a premise that your business rents. The costs of not carrying insurance are such a risk that it makes sense, if it is required, to carry liability insurance for your business in Illinois.
In 2008, Illinois passed the Biometric Information Privacy Act (BIPA). The law was passed to give privacy to individuals in regard to their biometric information: retina and iris scans, voice prints, fingerprints, and even facial geometry. It is currently the only state that allows private action for BIPA violations. Filings are taking place by both third-party individuals and employees.
The courts in Illinois have been unfavorable to businesses and insurers in BIPA rulings, such as the 2022 ruling against the BNSF Railway with a $228 million judgment ruled in favor of the plaintiffs. The Illinois Supreme Court continues to expand the power of the law including increasing the statute of limitation on BIPA claims from one year to five years.
Here’s why this matters for small business insurance in Illinois: there may currently be coverage in CGL under the personal injury section or in EPL insurance. However, insurers are currently trying to write in exclusions for new and renewed policies.
Some states require more insurance than others. Exceptions within industries can lead to specific requirements that are not broadly required for other small business owners. Of course, there is always the risk of being uninsured or underinsured when it comes to deciding what business insurance to purchase.
Other Types of Small Business Insurance for Illinois
As you can see, Illinois business insurance requirements are minimal, but that doesn’t mean there are other types of insurance that shouldn’t be considered, especially if the coverage in question applies to your business operations. These are the most common and important types of Illinois business insurance.
Type of Coverage
What It Covers
Claims of financial harm or loss as a result of advice or failure to perform a contracted service made by a third party
First-party coverage for property owned, typically fixed property or contents
Liability protection, first-party protection for your property and, usually, business lost income coverage
First-party for tools and equipment
Excess liability coverage for claims that exceed the limits of your liability policy
First and third-party coverage for losses related to data breaches, hacking, or other cyber-related losses
Employment Practices Liability Insurance (EPLI)
Claims of wrongful termination or other harmful employment practices
General liability insurance in Illinois, while important, is not the only type of liability coverage a small business owner may need. Industries in the service sector also need to consider professional liability insurance. This coverage is commonly referred to as errors & omissions (E&O) and differs from general liability by having a narrower focus on what is covered.
Let’s say you own a financial planning or architecture firm in Illinois. Professional liability targets claims of negligence in advice or adhering to a contract, as opposed to the more general liabilities of a CGL.
A common example of a professional liability claim is a situation where someone claims you gave them bad financial advice or failed to deliver on a contract. In a situation like that, E&O insurance is what you would turn to for help.
As a business owner, it is important to protect the actual property you own and your business from claims of negligence. That’s where commercial property insurance comes into play. It is a first-party coverage, meaning it is for your property and not someone else’s.
It is important if you own a building, have a rented office space with furniture, or have a warehouse full of inventory. Depending on how the insurer writes the policy, it may have coverage for tools and equipment—or you may need to insure that with a separate policy called inland marine (which we cover later on).
Usually, losses are handled on a named-peril basis, and coverage is typically limited to the listed location. This means the types of losses covered are described in the policy and are only associated with the listed location. For instance, the policy may say that fire, theft, or vandalism are covered losses at a specific location, but wear and tear of the office coffee machine and the printer are not.
But sometimes, you may encounter a provider that offers commercial property on an “all risk” coverage form. This means the policy will cover any loss that isn’t specifically excluded in the policy.
A BOP is a great option for Illinois small business insurance. It is a combination of general liability and commercial property. Insurers will usually include a third coverage called business income insurance.
An advantage of a BOP is that it is usually more affordable to bundle the policies than to purchase each one separately, and the BOP offers the convenience of having one policy for multiple types of coverage.
While commercial property is limited to a listed location, inland marine insurance “travels” with the tools and equipment. Hence, the “inland” part of its name. If you are working in an industry with tools or equipment—like a painter, contractor, or handyperson—then you’ll need to consider this insurance.
Insurers will usually approach inland marine in one of two ways: some will have a blanket coverage for tools and equipment, while others will have you list or “schedule” each individual item on the policy. So, let’s say you are working on a job site and an expensive piece of equipment is stolen. You would file a claim on your inland marine policy.
Insurers sell policies that have a limit in total coverage, and sometimes, that limit is insufficient. That’s where commercial umbrella, an excess liability policy, comes in. If you work in a riskier industry and are concerned that the limits on your general or professional liability policy may not be enough, a commercial umbrella policy can be purchased. The policy’s limits would not come into play until the limits of the other policy are exhausted.
For instance, you have a general liability policy with a limit of $2 million and a commercial umbrella policy with a limit of $1 million. Once the general liability policy of $2 million is exhausted, you could file a claim for the additional $1 million in coverage from the umbrella policy.
This insurance can be misleading because, despite the “liability” part of the name, cyber liability insurance is similar to a BOP and is usually divided into first and third-party coverage:
- First-party cyber liability helps with the expenses you face from a data breach, which can include investigating and notifying anyone impacted.
- Third-party cyber liability is coverage that can help protect your business if customers decide to sue you over negligence. In the event of a data breach, your business may be subject to fines and penalties from the government or private entities. This part of the policy can also help with those fines.
Finally, EPLI is an important Illinois small business insurance policy because it offers protection for your business against claims of wrongful termination, hiring, and employment practices. Examples of an EPLI claim include sexual harassment and gender discrimination.
Illinois Small Business Insurance Costs
As you may expect, premiums for Illinois business insurance vary widely depending on the industry and size of the company. When determining a premium, insurers factor in the industry class code and the business’ claims history and size.
In our research for this article, we obtained a number of sample quotes from a variety of different brokers and carriers. All of them were for companies with three employees or fewer and an annual revenue under $250,000.
Estimated Monthly Premium
$82 to $298
$1 million per occurrence, $2 million aggregate
$16 to $67
$1 million per occurrence, $2 million aggregate
$525 to $1,380
$1 million per occurrence, $2 million aggregate (includes liquor liability)
Cost of building and kitchen equipment
When evaluating the risk of a business, providers consider several factors. Some of these are:
- The geographic region within Illinois, including the specific county
- Yearly revenue and payroll
- Claims history
- Risk management and training
- Business experience
- Prior insurance history
How To Get Illinois Business Insurance
When looking to get business insurance in Illinois, you have several options to pursue.
Whether you use a broker or an agent, all insurance policies are underwritten and serviced by an insurance company, or carrier. Some companies distribute their products through agents or brokers, whereas others work directly with consumers and generate quotes online. Finally, there are carriers that only sell insurance through agents.
An agent works for the insurance company and helps connect the carrier with prospective policyholders. There are some agents who are called “captive agents” and only sell insurance for one insurance company. Others are called “independent agents,” and they work with multiple insurance companies. For example, State Farm is a provider with many captive agents, while Liberty Mutual is a carrier that works with independent agents.
Another option for purchasing business insurance in Illinois is by going through a broker. A broker is like an agent, except the broker works on behalf of the customer and not for the insurance company. Usually, a broker will work with many carriers and provide insurance advice to the client while helping them find the best option for insurance.
Illinois Small Business Statistics—Why Insurance is Important
With a total population of 12,582,032, the Prairie State of Illinois is the sixth-most populous state. However, its economy ranks fifth in size among all states in the United States along with Washington, D.C. When surveying the economy, one thing stands out: small businesses make up the majority of employment for Illinois:
- There are 1.2 million small businesses. These make up 99.6% of all Illinois businesses.
- These small businesses employ 2.5 million workers. These employees make up 44.7% of the total workforce.
- Between March 2020 and March 2021, 39,354 businesses opened and 31,400 closed for a net increase of 7,954.
- Of these small businesses, the vast majority (994,233) have no employees. Only 29,382 businesses in Illinois have 20 to 499 employees.
- Transportation and warehousing employs the most with 171,426. Construction employs the fourth most, with 121,189 employees.
Business insurance in Illinois plays an important part to the robust small business economy by helping with coverages like business interruption and injured workers with their wages.
Frequently Asked Questions (FAQs)
Yes, workers’ comp is a required small business insurance in Illinois. You are required to carry it if your business has one employee, even if the employee is a part-time worker.
General liability isn’t required on a statewide level in Illinois. However, there are some industries that are required to carry it for licensure. For example, daycares must have an active general liability policy.
The cost of small business insurance in Illinois will vary depending on the industry and size of the business. A small handyperson operation will pay around $82 to $298 monthly for a standard general liability insurance policy.
The state of Illinois has a strong small business economy with 1.2 million small businesses. This number translates into 99.6% of all businesses in the state.
The Illinois Department of Insurance handles complaints regarding insurance companies. You can file a complaint one of two ways: by downloading and filling out forms from its website, or by submitting a complaint through the online portal. Either way, the process will begin through the department’s website.
Specific coverage will depend on the language and exclusions in your policy. However, there may be coverage for a BIPA loss under the personal injury coverage of a commercial general liability policy.
For every day your business doesn’t carry workers’ comp, it can be fined $500. The minimum fine is $10,000. If the business doesn’t pay the fine, then its corporate officers can be held personally liable.
The land of Lincoln is a great place to start a business, as small businesses make up the majority of all businesses in Illinois. Small business insurance in Illinois is an important part of that economy by helping a business when it has a loss.
Simply Business understands the importance of insurance while making it simple and affordable to purchase insurance online. In 10 minutes or less, you can compare quotes in real time from top companies, modify coverages, and purchase a policy online or call to speak to one of its agents.