1. Insurance Protection for an LLC
2. LLC Insurance Requirements by State
3. LLC Property Insurance Coverage
4. Liability Insurance for LLCs
5. Cost of LLC Insurance

LLC insurance rates are the premiums you pay in the event that you are held legally responsible for an event that occurs while you are running your limited liability company. Examples of when insurance is needed beyond the protection offered by your LLC include instances where:

  • You personally harm someone.
  • You offer a personal guarantee for a business debt or loan.
  • You make an error on taxes owed for your LLC.
  • You commit a crime such as fraud.
  • Your reckless behavior damages the company.
  • You combine your personal and business expenses and/or accounts rather than treating them as separate entities.

Insurance Protection for an LLC

While establishing an LLC offers limited liability protection, it does not act as insurance. For example, a fire that damages your business would be covered under a separate insurance policy, not by the LLC's limited liability protection. As an LLC owner, you must also avoid piercing the corporate veil. This describes instances where you mix personal and business finances or take on extensive business debt, both of which could result in personal liability. Consulting an insurance agent and an attorney can help ensure that your LLC is properly insured, protecting both your business and personal assets.

LLC Insurance Requirements by State

Each state establishes guidelines for the amount of insurance that must be carried by an LLC. Every state requires every business entity to have workers' compensation insurance. In some states, however, it's only required for companies that have three or more employees, while other states require this coverage even for businesses that do not have employees.

In certain states, you'll need to contribute to disability insurance for your workers. This type of coverage is for incidents that occur outside of work but prevent the employee from completing his or her duties. Some states also tax employers to cover unemployment insurance which covers payments to workers who lose their jobs.

LLC Property Insurance Coverage

If your business has a storefront or office location, property insurance is essential. This type of coverage protects against damage or loss from a covered cause such as a fire. The policy should cover not only the structure itself, but also personal and business property kept at the site. Be aware of any exclusions to your policy. Three types of property insurance coverage are available:

  • Basic property insurance, which covers natural disasters and fire but usually does not cover theft.
  • Broad property insurance, which offers expanded coverage.
  • Special form property insurance, which provides optimal protection and lists only items that are not covered. 

Liability Insurance for LLCs

The amount of liability insurance your business needs depends on the type of business and its associated risk factors. Common types of liability insurance include:

  • General liability, which covers lawsuits accusing you of slander and/or injuries that take place on your property. This type of policy covers associated medical expenses, settlements, judgments, and/or legal defense costs. It's critical to make sure your LLC has enough general liability coverage.
  • Product liability is important for those in manufacturing and sales. It provides coverage if your product causes property damage or injury.
  • Professional liability, sometimes referred to as errors and omissions insurance, is designed for companies that offer professional services such as financial consulting, medicine, or law. For example, malpractice insurance is professional liability insurance for those who practice medicine.
  • Directors and officers liability provides coverage if any of your LLC's officers and/or directors is accused of fraud, negligence, or another business-related offense. 
  • Commercial vehicle insurance is required if you have commercial vehicles. This covers you and your employees if you are at fault in a car accident. 
  • Business interruption insurance covers business expenses if your company is displaced by fire or a similar incident. 
  • Inland marine insurance is required for businesses that transport supplies and equipment; you'll also need additional insurance if you transport hazardous materials or use big rigs. 
  • Umbrella insurance offers supplemental insurance that extends the coverage offered by other insurance policies.

Cost of LLC Insurance

The cost of insurance for your LLC will vary drastically depending on the specific policies you need. Prices can range from several hundred dollars for a small family business to several hundred thousand for a large enterprise.

If you need help with purchasing the right insurance policies for your limited liability company, 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.