Congrats! You’ve decided to be your own boss and register your business as a limited liability company (LLC) to protect your personal assets in the process. But have you considered what business insurance options you need as an LLC?
Unlike a sole-proprietorship or DBA (“doing business as”), a limited liability company (LLC) is a type of business that has its own legal identity distinct from you, its owner – which means your personal assets shouldn’t be targeted if your business is sued or goes bankrupt. (Check out the other key differences between a DBA and LLC).
Small business owners that go the LLC route often assume they don’t need business insurance because their car, home and savings accounts are all off-limits, (and because “limited liability” sounds an awful lot like they’re already covered). But this isn’t always the case.
What if a client slips and falls during an appointment, or your customer information is hacked? From general liability policies, to commercial property policies, cyber protection and more, there are many types of business insurance for LLCs — and finding the right mix can help protect both your personal and company assets against unexpected events and costly lawsuits.
Here’s a detailed guide to help you navigate the different coverage options and find the right insurance for your LLC.
Understanding Business Insurance for LLCs
Just like people, businesses need insurance options to safeguard against the specific (and potentially costly) risks they face.
For example, if your business is advice-based, there’s a risk that a client may sue you if they misinterpret your guidance. Or, if you host clients in a brick-and-mortar office, you could lose revenue if the building is damaged and you need to cancel appointments to complete the repairs.
Business insurance helps ensure your company won’t need to foot the bill if these risks become a reality.
Are you legally required to have business insurance for your LLC?
If you have an LLC but no employees, business insurance typically isn’t mandatory. However, it may be legally required depending on the type of business you operate and where you live. If you do have people working for you, you’ll need to ensure they have access to worker’s compensation insurance.
In some instances, your clients might also require that you have certain kinds of insurance coverage. For example, you may be asked to get professional liability insurance if you’re a landscaping contractor and there’s a risk you could damage valuable infrastructure while digging.
What are the other benefits of small business insurance?
Beyond legal or contractual obligations, the right business insurance is essential for:
- Managing risks (and providing you with peace of mind)
- Protecting your business assets
- Defending against lawsuits
- Increasing your company’s credibility
Types of business insurance for LLCs
- General business liability insurance: This coverage is essential for protecting your business against bodily injury and property damage lawsuits. If you run your own ad campaigns or post on social media, general liability insurance covers advertising injuries if you’re sued for posting someone else’s content without permission or making false claims about other companies or brands.
- Commercial property insurance: This type of policy will cover the cost to repair or replace your business’ property, like your office space, expensive equipment or inventory, if they’re damaged by fire, smoke, windstorms, hailstorms, vandalism and more. Oftentimes, providers will offer a business owners policy (BOP) which combines this coverage with general liability insurance.
- Professional liability insurance: Mistakes happen — but if you’re a coach, a freelancer, or you provide other professional services to clients, you could be sued for making an error or forgetting to disclose critical details that end up costing your client money. With professional liability coverage (also known as errors and omissions insurance), you won’t have to use company funds to pay for legal costs if this happens to you.
- Commercial auto insurance: This type of auto policy covers vehicles that are used for business purposes, like making deliveries and picking up clients. If your company owns or leases a vehicle, you’ll need to have it.
- Umbrella insurance: Legal costs can add up quickly, so this type of policy provides additional liability coverage you can use if you max out your other general liability insurance, professional liability insurance, or your commercial auto coverage.
- Cyber liability insurance: Data breaches are both common and expensive. This coverage will help pay for the costs to notify your clients, recover data, and repair your computer system. It also covers lost income if you’re unable to work due to a breach.
- Workers’ compensation insurance: Laws vary by state, but almost all small businesses with employees need a workers’ comp policy. It provides coverage for medical bills, other medical expenses and lost wages if your employees get injured on the job or are diagnosed with a work-related illness.
- Employment Practices Liability Insurance (EPLI): This type of policy protects against liability claims if an employee sues your company for discrimination, wrongful termination, or harassment.
- Directors and Officers (D&O) insurance: If your LLC has a Board of Directors, your board members or appointed officers could be personally sued by employees, investors or competitors over the management of the company. D&O insurance will cover these legal costs and keep their personal assets protected.
Factors to consider
Here’s what to do before you move forward with a business insurance policy.
- Assess your needs: Map out the risks your business faces so you can identify the types of insurance and coverage options you need.
- Determine your coverage limits: Put together a rough estimate of how much your risks could run you if they actually happened. Choose a coverage limit that’s higher than what you’ve estimated, just in case.
- Evaluate your insurance costs: Costs will vary depending on your coverage, but it’s important to find room in the budget for the insurance you need. If you’re struggling to see the value, gently nudge yourself back to that worst-case scenario estimate. You’ll thank yourself later, we promise!
- Pay attention to exclusions: Every insurance policy will list events (often called “perils”) that they don’t cover. Take time to research what isn’t included so you can assess the full value of each coverage option.
- Ask questions about the claims process: Before you commit to a provider, find out how long it typically takes them to process claims and try to get a sense for how much support they can offer you.
Finding the right policy for you
Here are the final steps you’ll want to take before securing business insurance.
- Research reputable providers: A lot of companies offer these types of coverages, so pick one that aligns with your priorities. Here are a few solid options:
- Hiscox: If you’re looking to save time, this provider says they can find you a policy and get you a quote in just 20 seconds.
- Next: If you’re not sure where to start, this company specializes in small business insurance and shows you coverage options that are tailored to your specific profession.
- State Farm: Ranked #1 in customer satisfaction among all small business insurers, this is a great choice if you want the support of a knowledgeable insurance agent.
- Request multiple quotes: Insurance companies each have their own way to calculate risk, so compare a few quotes before you commit. Just make sure each policy offers similar coverage so you’re comparing apples to apples.
- Consult an expert: For extra peace of mind, talk to an insurance agent or broker who specializes in business insurance. You may also want to follow up with a lawyer to make sure all your bases are covered.
- Review the terms, coverage and pricing: Once you’ve settled on a policy, make sure you understand what’s covered, when it renews, and how you can cancel if necessary. If the policy includes a deductible, you can choose a higher amount to keep your premium as low as possible – just be sure your business has the funds to cover it.
- Purchase your policy: You can either get a policy directly online or work with a customer support agent or broker in-person or over the phone. We know you’re super busy, but try your best not to just set it and forget it — your business needs will likely change over time so it’s wise to review your coverage each year.
Set Your Business Up For Success
From taxes to marketing and everything in between — there’s a lot to think about when you start your own LLC, and purchasing business insurance gives you a solid foundation for success.
Once you’ve found the right policy, consider taking advantage of other resources that will save you time and keep things simple. Practice’s CRM tool can help you with your scheduling, payments, forms, contracts, file storage, and more — and you can try it free for seven days.
Disclaimer: The information is for educational purposes only. If you need insurance or legal advice, please contact a licensed insurance agent or legal professional.
Additional Resources:
- Small Business Association (SBA)
- SBA Instructor Guide: Insurance for a small business
- America’s Small Business Development Center’s Small Business Resiliency Guide
