LLC Insurance

LLC insurance provides protection for a business and/or the owner(s) of the business in case a lawsuit is filed against it or them. It also protects against third-party claims. Coverage will include the business's legal expenses and financial liability that's incurred.

Finding LLC Insurance

Many businesses are LLCs, or limited liability companies. LLCs have a partnership's tax advantages, so there's no double taxation. Many business owners start an LLC in order to keep their personal liability separate from business operations. If a lawsuit ever arises or a liability insurance claim is brought, business owners want their personal assets protected. The right LLC insurance can protect against gaps in coverage.

Exceptions to Limited Liability

In some cases, a business owner can be held liable while working for the LLC. LLCs are unlikely to protect business owners in certain circumstances, such as:

  • Injuring a person

  • Offering a personal guarantee for a debt or business loan

  • Mismanagement of business taxes

  • Committing a crime or taking part in reckless or fraudulent actions that hurt the company

  • Mixing personal and business accounts and expenses instead of treating the business as a separate legal entity

Cost of LLC Insurance

Your cost for an LLC insurance package depends on a range of factors, including:

  • The type of business you operate

  • The types of coverage your business needs

  • The number of employees in the company

  • Whether or not your company is part an industry considered to be litigation-prone

Because of the widely differing costs you may encounter, it's good practice to compare quotes on insurance, keeping your business and its risks in mind. If your company is small and only has a few risks, your insurance might provide adequate protection for just a few hundred dollars annually, while a large corporation could pay more than $500,000 for insurance coverage every year.

Property Insurance Coverage

All businesses with a physical location need property insurance. It protects the company – whether it's simply the real estate or physical inventory – in the event of:

  • Fire

  • Flood

  • Other natural disasters

These events are addressed by property, casualty, and fire insurance policies. Restaurants and chemical companies are at higher risk of fire, so industry trade associations can recommend insurers who either offer discounts to members of that trade association or are very effective in their insurance role. These policies cover the property's value at the time of the damage or cover the cost to replace damaged or destroyed property. The latter is usually a higher amount.

Effective commercial property policies should cover things like:

  • Personal property of the business owner stored on-site

  • The building structure

Liability Insurance for an LLC

Liability insurance is designed to protect an LLC from litigation that can destroy the business. An LLC has to select insurance products based on:

  • Business location(s)

  • Lines of business

  • Business risks

Product liability insurance protects a company if a customer is injured while using the company's products. This is helpful for businesses that sell or manufacture goods.

Some states require disability insurance. Although workers' compensation covers injuries and illnesses that are work-related, disability insurance covers illness and incidents that aren't work-related if these incidents prevent employees from working.

Unemployment insurance tax helps to cover the costs of unemployment insurance when employees lose their jobs. Business owners should check with his or her state to see if this is a required tax.

General Liability Insurance

Depending on what your company sells, you may only need general liability, which is an all-encompassing policy. This type of policy covers individuals as well as the LLC. It's the main coverage that protects a company from:

  • Property damage

  • Injury claims

  • Advertising claims

General liability also takes care of:

  • Legal defense costs

  • Medical expenses

  • Settlements/judgments when customers are injured on company property

  • Judgments/settlements when the business owner is accused of slander

If individuals can be sued personally, with enough coverage, a general liability policy can be used to:

  • Shield a member's home

  • Pay damages

  • Protect a member's bank account and additional assets

Many other forms of LLC insurance coverage exist, and business owners should consider their company's needs when selecting a policy.

If you need help with choosing the right LLC insurance for your business, 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 working with or on behalf of companies like Google, Stripe, and Twilio.