Business Insurance for an LLC

If you are the owner of a Limited Liability Company (LLC), you need to have the correct type of business insurance to protect your assets, employees, and reputation. Although your LLC designation means that your business assets remain separate from your personal assets, and you won’t have personal responsibility for the company’s debts, liabilities, or lawsuits, your business could suffer from financial devastation due to these situations.

Limited Liability Company (LLC) Insurance protects your business against numerous liability claims. Examples include bodily harm or property damage caused by your employees, business, or products. However, depending on your business or industry, you may also require different types of liability insurance.

Are LLCs Required to Have Liability Insurance?

This question’s answer depends on a few factors, such as the type of business you run and the risk factors associated with the business. For example, if you own an ice cream business, your insurance needs would differ from someone who owns a general contracting business simply because the risks involved are quite different.

In some cases, the law may require you to have certain types of liability insurance regardless of the business you run. For example, if your company has employees, the Federal Government requires that you have worker’s compensation, disability, and unemployment insurance.

Additionally, different states may require other types of insurance by law. You should always check with your state to determine the requirements for insurance for companies designated as LLCs.

Why You Should Invest in Business Insurance for Your LLC

As a business owner, you have invested much of your money, time, and manpower into starting and building your business. In many cases, the financial devastation of your company would also mean your financial devastation. If that alone isn’t enough to convince you, consider these additional benefits.

Business insurance keeps your personal belongings safe. Even though, as an LLC, your personal assets are protected against specific claims or lawsuits, it requires a diligent and clear separation of these two assets. Many small LLCs don’t rigorously separate the two. Therefore, a lawsuit could cause personal financial losses. 

If your company loses a court case, business insurance will help to defend your company’s assets and can pay for the settlement or losses.

Some business insurance, such as worker’s compensation, protects your employees. If your employee gets hurt while on the job, your insurance policy will help pay their medical expenses and time needed off work.

Finally, business insurance pays the defense costs for lawsuits. If your company faces a lawsuit initiated by another party, the expenses to defend yourself in litigation can prove extremely costly. With the right amount of business insurance for your LLC, your policy would cover these costs, and you wouldn’t have to pay out of pocket.

What Are the Different Types of Business Insurance for LLCs?

Aside from those required by Federal law—worker’s compensation, disability, and unemployment—various other types of insurance exist to protect your business and its assets. You should consider purchasing insurance for any incident that would cause financial hardship to your business if it were to occur.

General Liability Insurance is a good option for any business, and all business owners should consider it. It protects you financially from bodily injury, property damage, and medical expenses related to the business. In addition, it offers protection for slander, libel, lawsuits (where you are the defendant), and settlement payments resulting from lawsuits.

Product Liability Insurance protects your business against losses resulting from a defective product manufactured or sold that causes bodily injury or harm. This type of insurance is a must-have for any company that manufactures or sells products.

Professional Liability Insurance is a standard policy for businesses that offer services to others (such as accountants, financial planners, doctors, etc.). This insurance protects your business against errors, malpractice, or negligence.

Commercial Property Insurance LLCs with a large amount of property and/or other physical assets should consider this type of insurance. It provides financial protection against many issues that could damage or ruin your property, such as fire, natural disasters, vandalism, or theft.

Home-Based Business Insurance is a must for LLCs that run out of an individual’s home. It can often be added to the homeowner’s policy and explicitly protects the business-related equipment and any injuries of clients, customers, etc.

Many LLCs combine most of the typical coverage options into a single bundle known as a Business Owner’s Policy. It helps simplify the insurance process and can often save the business owner some money.

How Much Does a Business Insurance Policy Typically Cost?

No definite answer exists regarding how much you will pay for business insurance for your LLC. The price of your premium depends on many factors, such as the type of business you run, its location, the number of workers you employ, the amount of property or vehicles owned by your company, and the policies you choose to purchase.

A general range for LLC business insurance is between $700 and $3800 per year. As you can see, this range is quite extensive, and many factors will influence the quote you receive for your specific business.

You should always shop around and speak with a knowledgeable agent to determine the type of policy you need and how much it will cost.

How To Pick The Right Business Insurance for Your LLC

When choosing which types of insurance to purchase for your business, complete a few critical steps. First, determine which insurance you will need to meet the requirements of Federal and State law and ensure that you obtain those required policies.

After obtaining the policies required by law, assess the risks involved in your specific business. These risks include any potential accidents, lawsuits, natural disasters, or other claims that could potentially cause financial ruin for your business. A business should plan to purchase enough insurance to cover each of these risks without purchasing extra insurance that isn’t needed.

For example, if your business operates a fleet of vehicles, you must ensure that you have the right coverage to protect the vehicles and their drivers. Other businesses would not require this coverage.

Once you know the type of insurance your LLC needs, seek a reputable insurance agent. Working with a commercial insurance agent will allow you to match your business needs with the right company and policy at the right price. You can also compare multiple quotes on your own from different companies, but if your insurance needs are more complex, it helps to work with an agent.

You may even want to consider working with several agents to fully assess the policy with the best rates, terms, and benefits for your company.

Also, see if there are ways you can save money by bundling your business policies together or even bundling the policies with some of your personal policies as well.

Finally, plan to re-evaluate your coverage every year. The needs of your business may change over the course of a year, and your liabilities could increase as your business grows. You want to always have adequate coverage at all times. Speak with your assigned agent to compare your current business needs with your existing policies.

What Important Questions Should I Ask My Insurance Agent?

When shopping for a business policy for your LLC, consider asking the following questions when you speak with agents to ensure that you have the right policy to meet your unique business needs.

What is the deductible amount?

The deductible is the portion of an insurance claim you must pay out of pocket before the insurance coverage initiates and pays the remainder.

So, if your insurance deductible is $2000 and a claim is $10,000, you must pay the first $2,000 out of pocket, and the insurance company will pay the remaining $8,000.

Often choosing a high deductible will make your monthly or yearly premiums lower. However, you must make sure that you would have the money in savings to cover the amount of it if you file an insurance claim.

Choosing a lower deductible will cause your premium to be higher but will result in less money out-of-pocket when you make a claim.

What is the price of the policy?

Make sure you understand the policy’s total cost and whether you will pay your premium monthly, quarterly, or annually. 

Your cost will vary depending on the criteria mentioned above and other factors, including how much coverage you wish to obtain.

When speaking with the agent, the key takeaway is to ensure that you fully understand all of the costs, how the company will bill you for them, and if you’ve taken advantage of any possible discounts that might apply to your policy (or policies).

What does the policy cover, and what does it exclude?

Make sure you fully understand everything that the policy (or policies) you have chosen cover. Think of some scenarios that might occur with your business and ask your agent if the policy would cover them and, if not, what you would need extra to have it covered.

Also, ensure you know the specific things excluded from your policy, such as loss of property due to certain natural disasters like floods.

In addition to the main business insurance policies discussed above, many companies offer optional riders that you can attach to your policy to protect more specific things related to your business.

Some of the most popular types of optional business insurance add-ons include:

  • Business Income Insurance to replace revenue if your business must close because of a covered event.
  • Professional Indemnity Insurance provides legal defense for lawsuits for professionals in the services industry against claims of negligence, oversights, malpractice, or errors that clients allege you committed. 
  • Data Breach Insurance for companies that keep customer data and may be susceptible to cyber-attacks.
  • Umbrella Coverage provides extra coverage that will pay out after you have reached your maximum liability insurance amount.
  • Flood Insurance protects businesses located in areas prone to flooding.
  • Employment Practices Liability assists with fees if an employee sues your company for things such as discrimination, harassment, or wrongful termination. 
  • Global insurance helps simplify coverage if your company does business outside of the U.S.

Is there a grace period for late payments?

A diligent business owner will ensure that insurance premiums are paid on time and in full. However, sometimes circumstances exist that result in a late payment.

Ask your agent if the company has a grace period in which you will not lose your coverage for late payment. In other words, if you miss a premium payment and an event occurs within the grace period that requires a claim, the insurance company will cover it as long as the company receives the premium payment before the end of the grace period.

Some policies offer you up to a 31-day grace period, whereas other types of coverage may not have a grace period. It is essential to know your policy’s grace period to ensure you always have the protection your business needs.

Final Thoughts on Business Insurance for LLCs

As you can see, running a business comes with many risks, and business owners are not always able to anticipate or financially plan for these types of situations. Having the correct amount and type of business insurance will ensure that your LLC remains protected financially in the event of a catastrophic loss, accident, lawsuit, or other situation.

In addition, not having the required types of insurance required by law for your business will cause you to incur expensive penalties and fines.

All business owners starting an LLC should spend time assessing their business risks and speak with a reputable commercial insurance agent to ensure they have the required coverage for unexpected events.

Although it may seem like a significant expense, especially when you are just starting or are a small company, you will see the benefits once you need to file your first claim. You will also have peace of mind knowing that your business will survive any type of catastrophe or litigation that comes its way and your employees will feel protected as well.

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