If you’ve chosen to structure your small business as a limited liability company (or LLC), you may have already considered risk management—since one of the benefits of an LLC is the financial protection it offers to small business owners.
By partitioning your personal assets (like your house, car, or personal savings account) from your business’s assets (like a business savings account, a commercial vehicle, or inventory), an LLC structure can prevent creditors to your business from coming after your personal assets.
What the LLC structure does not protect, however, is any of the assets owned by your business. To achieve coverage for business assets, many LLC owners work with an insurance company to get LLC insurance coverage.
What is limited liability company (LLC) insurance?
LLC insurance refers to a business insurance product held by a limited liability company for the purpose of protecting the company’s assets. While an LLC protects your personal assets from debts and liabilities incurred by your business, an LLC isn’t inherently protected from any liabilities caused by the business itself.
LLC insurance lets business owners obtain financial protection for their businesses and pay any claims against their business. LLC business insurance products can compensate your customers for their lost property, help you rebuild your shop if it gets damaged, and pay your salary while you get your business up and running again.
6 Types of LLC insurance
- Commercial property insurance
- General liability insurance
- Professional liability insurance
- Workers’ compensation insurance
- Business income interruption insurance
- Commercial auto insurance
There are many types of LLC business insurance. Some fall under a business owner’s policy (BOP)—an insurance package that bundles multiple types of coverage—while others have to be purchased separately or obtained as policy add-ons, or riders. Although specifics vary by provider, a business owner’s policy typically includes general liability insurance, commercial property insurance, and business interruption insurance.
Common LLC business insurance policy types include:
1. Commercial property insurance
Commercial property insurance can cover the costs of repairs to a commercial building (such as a warehouse, factory, or office) as the result of an accident, fire, or natural disaster, as well as the damage to equipment and inventory housed in the space.
If a hail storm damages your office roof, for example, commercial property insurance can cover the cost of its replacement. If the same storm causes a power outage that results in $5,000 of Wagyu beef spoiling, you may also be eligible for compensation for the cost of the lost product.
2. General liability insurance
General liability insurance can compensate an LLC for the financial implications of accidents that occur on its property and result in bodily injury to a nonemployee or in damage to a nonemployee’s personal property. For example, if a customer breaks a tooth biting into a caramel apple in your candy store, general liability insurance can cover medical bills for the customer and your business’s legal fees.
General liability coverage also typically extends to personal and advertising injury to a nonemployee. Personal injury liability claims can include defamation (such as slander or libel) or wrongful imprisonment; advertising injury might include copyright infringement.
3. Professional liability insurance
Professional liability insurance (also known as errors and omissions insurance) can cover liability claims for damage related to negligence in the performance of professional services.
For example, if your engineering firm makes an error in a land survey that ends up costing the developer who hired you $200,000, professional liability coverage can cover your business’s legal fees and the cost of any judgments against your business.
4. Workers’ compensation insurance
Workers’ compensation insurance covers medical expenses, legal fees, and lost wages for employees who are injured or become ill in your workplace. Many states require businesses to carry this type of coverage.
5. Business income interruption insurance
Business income interruption insurance replaces income lost as a result of a covered incident, such as vandalism, fire, or a natural disaster. If a too-hot pizza oven sends your restaurant up in flames, business income interruption insurance can provide you with compensation for lost income until you’re able to resume operations.
6. Commercial auto insurance
Commercial auto insurance provides coverage for damage to commercial vehicles as well as liability coverage for any accidents in which these vehicles are involved. If your dumpling delivery driver bumps into an ice cream truck, commercial auto insurance can cover the damage to your delivery vehicle as well as your liability for the damage caused to the ice cream truck.
Do all LLCs require insurance?
The short answer is yes—all LLCs can benefit from LLC insurance coverage. Most states require businesses with employees to carry workers’ compensation insurance and businesses that use commercial vehicles to carry commercial auto insurance.
Even if your LLC doesn’t meet these criteria, it’s a good idea to obtain LLC insurance because while the LLC structure protects your personal assets, it doesn’t protect any of the assets owned by your business.
How to get LLC insurance
You can obtain LLC insurance by working with an insurance broker, consulting an online insurance marketplace like Insureon or CoverWallet, or contacting an insurance agent to obtain a quote. Although working with an insurance broker can cost, it can save business owners time and labor. And, for particularly complex policy needs, a trusted insurance broker can also offer advice about finding a best-fit plan for your business.
To find a plan that meets your business’s needs, contact multiple providers to obtain quotes and compare coverage options, insurance rates, and policy exclusions across plans.
Your rates will vary considering annual revenue, location, number of employees, and industry. Businesses in higher-risk industries such as trucking, construction, and demolition are typically more expensive to insure than lower-risk office-based businesses. Some insurance providers also offer discounts for purchasing multiple policies (or for purchasing an insurance package, such as a business owner’s policy).
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LLC insurance FAQ
Who is insured in an LLC?
If a business owner purchases LLC insurance, that plan will protect the business’s assets. In other words, the business itself is insured—not the business owner. Setting up an LLC can protect a business owner's personal assets by legally separating them from the business’s assets, but the LLC structure is not a type of insurance.
What are six common types of commercial insurance?
Six common types of commercial insurance include:
- General liability insurance
- Business income interruption insurance
- Commercial property insurance
- Workers’ compensation insurance
- Commercial auto insurance
- Professional liability insurance
Is an LLC the same as business insurance?
LLC and business insurance are not the same. An LLC is a business structure that separates a business owner’s assets from the business’s assets. Business insurance, on the other hand, can compensate business owners for business property damage and protect business assets from the financial consequences of liability claims.
