Insurance for LLC: Everything You Need to Know
Insurance for an LLC is available in many different policies, to cover a multitude of potential losses. 3 min read
2. LLCs and Liability Issues
3. State Insurance Requirements for LLCs
4. Cost of LLC Insurance
5. Buying LLC Insurance
Insurance for an LLC is available in many different policies, to cover a multitude of potential losses. Both the LLC and individual members may be covered by general liability policies. Quotes for general liability insurance commonly include liability due to bodily injury and property damage, advertising, medical payments, issues related to products, and damages to any premises the business rents or leases. When individual LLC owners can be sued, those members' houses, bank accounts, and other assets are covered with a policy large enough to cover potential damages. Such insurance can protect an LLC from catastrophic litigation if the policy is high enough.
Other Types of Insurance for LLCs
Malpractice insurance is not just for doctors, but also a useful policy for other professionals. Even if your state law does not require malpractice insurance, you should buy it anyway. Otherwise, your business is at risk of bankruptcy in the event of a court ruling in the defendant's favor. For LLCs that are not in the medical industry, these policies are referred to as “errors and omissions” coverage.
Property insurance protects your financial interests in the event of a fire, burglary, storm damage, or other destructive event. These can cover the property's actual value, or the replacement cost of the damaged items.
Product liability insurance protects businesses that sell or manufacture products, in case a customer using the products becomes injured. Your business type will determine the amount of coverage you need.
Directors and officers liability insurance shields your company in case one or more of your directors or officers are sued for negligence or wrongdoing.
LLCs and Liability Issues
Limited liability companies, or LLCs for short, are allowed by every state in the U.S. Most commonly, business owners choose to create an LLC to protect their personal liability. This does not, however, protect owners or members completely. The LLC structure only protects you for actions that are within the scope of usual business. You can still be held liable for actions that take place during the performance of your business duties, including:
- Personally injuring someone.
- Personally guaranteeing a business loan or debt.
- Negligence regarding recordkeeping, reporting, or payment of business taxes.
- Crimes or fraudulent behavior.
- Liabilities related to mixing business and personal property, expenses, or assets.
State Insurance Requirements for LLCs
Rules for LLC insurance vary between the states. Therefore, you need to research these rules before you open the business to make sure all rules are followed.
All states require workers compensation coverage for all businesses, including LLCs, but each state may have its own guidelines. For example, you need to find out if your state requires you to provide workers compensation even if you do not hire employees. Some states only require this coverage if you have a certain number of employees.
Disability insurance is another requirement by some states, but not others. Workers compensation applies to injuries and illnesses that are work-related. Disability insurance, on the other hand, covers illnesses and incidents that are not work-related, but prevent that worker from doing their job.
Your state may require you to pay unemployment insurance tax. This covers some of the costs for workers who lose their jobs. Your company may also need to register with the state workforce agency.
Cost of LLC Insurance
How much your LLC insurance costs will vary widely based upon your type of business, its size, and the dollar amount of coverage you would like to acquire. Your insurance company will need to consider how many employees you have, or if you work in an industry that is prone to lawsuits. You'll want to compare several quotes for LLC insurance based on your own business needs before settling on a provider and a policy.
If you have a small business, in an industry that is not inherently risky, your annual insurance costs may only be a few hundred dollars. A larger company may need much more.
Buying LLC Insurance
When you begin shopping around for an LLC insurance policy, make sure you are dealing with trusted agents who are commercial coverage specialists. These experts can advise you about your needs, so you are sure to get sufficient coverage for anything that might happen to your business. They will also make sure you don't pay too much for coverage you do not need. An agent who works with many different providers can do much of the comparison shopping for you.
If you need more information or help with insurance for an LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.