Does your LLC need insurance? LLC insurance coverage is a measure you can take to help protect your business assets in the event of a legal claim against your company.
While forming an LLC creates a separation between your personal assets and those of your business, having insurance for your LLC helps guard your company against losses as a result of circumstances in the course of doing business.
How Do You Know What Kind of LLC Insurance You’ll Need?
The type and amount of LLC insurance coverage will depend on a variety of factors including the level of risk associated with your business activities, the worth of your business assets, the type of business you run, and your state’s business insurance laws.
I recommend talking with your attorney and a trusted insurance agent for guidance, so you know what you’ll need to adequately protect everything you’ve worked so hard for.
To give you some advance understanding of several common types of business insurance you might consider for your LLC, I’ve provided an overview below.
1. General Liability Insurance
This type of LLC insurance helps protect your business if someone becomes injured while on your company’s premises or if someone accuses you of damaging them through slander. General liability policies will typically cover medical costs, legal expenses, and legal restitution and settlements.
The extent of your liability coverage needs will depend on the type of business you operate and how much risk you face.
2. Product Liability Insurance
If a product that you manufactured (or for which you were in any way involved in the manufacturing of) or sold results in harm to someone or causes property damage, your business could be held liable. Product liability coverage will help protect your LLC if such a claim is brought against your company.
3. Errors and Omissions Insurance
E & O insurance (also known as professional liability insurance) is a type of coverage beneficial for professional services providers. It helps protect your business if you make a mistake that causes a client to experience a loss. One common example of errors and omissions insurance is the malpractice insurance that physicians have. Other types of professionals from financial advisors to advertising agencies might be good candidates for professional liability coverage.
4. Business Property Insurance
Property insurance is one of the most essential types of coverage for companies that conduct their business on real estate that they own. With a property insurance policy, you help insulate your LLC from property losses and damages from specified causes (such as fire, vandalism, or other disasters). Before buying a policy, make sure you understand what it will and will not cover. Besides the types of losses it will insure, also review what elements of your property it will protect (for example, the commercial structure, business furnishings, personal property stored on the business site, etc.).
Typically, damage from floods is not covered by property insurance. If your business operates from a site where a flood could occur, you may want to explore coverage options specific to that type of event.
5. Business Interruption Insurance
When considering property insurance, you should think not only about extra expenses that you’ll incur but also the inability to make money for a period of time after a disastrous event. You may want to further protect yourself with an add-on to your property coverage that would compensate you for revenue your LLC loses if you cannot operate your business due to property damage.
6. Key Man Insurance
Another way to protect your LLC is a “key man” life insurance policy. This type of policy’s purpose is to help your business in the event of the death of a principal member of your LLC—for example, you the owner, a co-owner, or a key employee. When you have individuals who are absolutely critical to the success of your business, key man policies could help compensate for the loss in sales, productivity, credibility, etc. you would experience if they died.
With key man life insurance, your LLC would pay the premiums and would be the beneficiary of the policies. Some lenders may require that you have key man life insurance as collateral before they grant you a business loan or other funding.
7. Workers Compensation Insurance
Workers compensation insurance covers injuries and illnesses that happen on the job or because of the work environment.
If your LLC has employees, you must have this coverage. It is mandatory in all states, with requirements that vary from state to state. In some states, companies must have workers compensation coverage even if they don’t have hired staff members. Make sure you know your state’s rules to determine if you need to seek coverage.
8. Disability insurance
Depending on the state your LLC operates in, you might have to contribute to disability insurance. This type of coverage applies to illnesses and non-work-related events that prevent employees from returning to their jobs.
9. Unemployment Insurance
Your LLC might need to contribute (via a state tax) to the Federal-State Unemployment Insurance Program that provides unemployment benefits to workers who lose their jobs due to no fault of their own.
All states have their own unemployment insurance program, which they operate according to the guidelines set forth by federal law. In most states, only businesses that have employees must pay the tax to fund unemployment benefits.
The amount of unemployment tax your LLC must pay will depend on the state’s tax rate, the amount of your payroll, and the number of unemployment claims made against your company within a period of time.
How Much Will It Cost for LLC Insurance?
Unfortunately, there is no straightforward answer to this question.
The costs of the various LLC insurance will vary depending on the amount of risk associated with your business, the types of coverage you need, the amount of coverage you want, the number of employees you have, and other factors.
And rates will vary between one provider and the next, so it’s helpful to compare quotes.
When Should You Think About Getting Business Insurance?
Ideally, you should start considering what measures you should take to protect your business before you form your LLC. As you talk with your attorney and accountant about the legal and financial aspects involved in starting and running your business, also consult with an insurance agent who specializes in commercial insurance.
With many different forms of LLC insurance coverage available, you’ll benefit from having someone on your side to explain your options and guide you in selecting the right policies for your LLC.
And I’d be remiss to remind you that although CorpNet cannot help you in getting an insurance policy, we can help you with filing the paperwork to register your LLC—in all of the 50 states. Contact us today to get started!