Limited liability company insurance: What is it and what does it cover?

What type of insurance do LLCs need?

Your business could be one mistake or accident away from financial devastation. Having the right type of small business insurance for your LLC protects your company financially.

Here are the most common types of business insurance for LLCs:

• General liability insurance: A general liability policy provides bodily injury liability insurance for an LLC in case a client or customer slips and falls. It also covers property damage if you or an employee accidentally damage your client’s property.
• Commercial auto insurance: A commercial auto policy covers your business vehicles if you or your drivers are involved in an accident. It also can cover your personal vehicles if something happens while you’re using them for work-related purposes.
• Commercial property insurance: A commercial property policy covers your business inventory, building and equipment if they’re damaged in a fire or other event. 
• Professional liability insurance: Also called errors and omissions (E&O) insurance, professional liability insurance provides legal defense and legal judgment coverage if a client files a claim about a mistake or error you or an employee made.
• Business owners policy: A BOP combines business liability and commercial property insurance into a single policy, which is typically more affordable than buying each policy separately. 
• Workers’ compensation insurance: A workers’ comp policy provides coverage for your employees if they get hurt on the job. Most states require workers’ compensation coverage for any company with employees.
• Cyber liability insurance: Cyber insurance can cover first-party claims, such as data breaches that affect your business. It may also cover third-party claims if a client blames you for causing or failing to prevent a cyber attack on their system.

“There are several types of insurance we recommend,” Rader says. “Besides the obvious, such as general liability, worker’s compensation, etc., it is necessary these days for businesses to have cyber security coverage. This coverage not only covers threats and breaches to computer systems and data, but it can also sometimes cover data recovery and attorney’s fees and costs. Cyber security insurance can also pay for investigations, customer notifications, ransomware and other associated costs.”

What does LLC insurance cover?

Business insurance for an LLC covers your business assets, like your property, vehicles and equipment.

Depending on the type of LLC small business insurance you have, it may cover claims for:

• Burglary and theft
• Fires and natural disasters
• Third-party bodily injury and property damage
• Auto accidents
• Personal injury liability or reputational harm
• Product liability
• Employee injuries
• Freezing and water damage in your commercial building

It can also cover expenses such as legal fees, judgments and settlements if a competitor or client sues you.

Litigation costs can range from $3,000 to $150,000 for small business owners, according to the Small Business Administration. 

How does LLC insurance work?

All small business insurance works pretty much the same way. If you face a loss from a covered risk, you file a claim with your insurer. You’re on the hook for the deductible – the amount you agree with your insurer to pay out of pocket – then your insurance covers the rest up to your policy limit.

Policies typically have a per-occurrence limit and an aggregate limit. A per-occurrence limit is how much your insurer will pay for a covered incident. The aggregate limit is how much your insurance will cover during a policy’s period, which is usually one year.

“It is important for small businesses to have liability insurance with at least $1,000,000 of per-occurrence limits for personal injuries and property damage – and potentially higher limits and/or umbrella/excess liability coverage, depending on the nature of the business,” says Sanjeev Devabhakthuni, partner and commercial dispute litigator at Barclay Damon LLP in New York. “Without the correct insurance in place, a business risks exposure to a lawsuit and damages that could lead to an exposure of liability to business assets, or even bankruptcy.” 

In addition, if you or your employees damage a client’s property, fail to complete work or honor a contract, or make an error that harms a client, and they sue you, your policy pays your legal expenses. If the client wins and receives a judgment or settlement, your policy will cover it, up to your policy limit.

Do you need business insurance for an LLC?

Unless you can afford to pay out-of-pocket for damages, court fees, legal expenses and a potential judgment, your LLC needs business insurance. The best insurance for your LLC depends on multiple factors, so it’s worth working with a commercial agent with LLC experience to tailor a policy to meet your specific needs.

Factors that affect LLC insurance cost

Factors affecting LLC insurance cost vary by policy type but generally include:

• Your industry and profession
• Your state laws
• Contract requirements
• Policy coverages, limits and deductibles
• Whether you have employees and how many you have
• Your business location
• How long you’ve been in business
• The value of your business property and equipment

How much does LLC business insurance cost?

The average cost of business insurance for an LLC depends on the type of policies you have. 

Below are the average monthly rates for each commercial policy type, according to small business insurance broker Insureon:

• General liability insurance: $42 per month
• Workers’ compensation insurance: $45 per month
• Commercial auto insurance: $147 per month
• Commercial property insurance: $67 per month
• Professional liability insurance: $61 per month
• Business owner’s policy: $57 per month
• Cyber insurance: $145 per month

LLC business insurance companies

The following companies offer LLC business insurance:

• biBerk is a Berkshire Hathaway Group company specializing in small business insurance.
• Hiscox says it's the leading small business insurer in America.
• Next covers more than 1,300 professions with over 500,000 insured businesses.
• Progressive is America’s #1 small business insurer based on 2023 NAIC market share data.
• The Hartford has more than 200 years of commercial insurance experience.
• Thimble offers quotes in 60 seconds or less.

Working with an experienced commercial insurance agent or broker is the easiest way to find the best business insurance for an LLC. They can evaluate your risk and coverage needs to determine the best package of policies to protect your business.

LLC insurance requirements

Your LLC may need to meet certain insurance requirements. For instance, you must meet the minimum state law requirements for auto insurance if you have commercial vehicles. If you have employees, then you also must comply with your state’s laws on workers’ compensation insurance. You may also need commercial property insurance if you rent a building or equipment.

How to get business insurance for an LLC

You can get business insurance for an LLC in just a few steps:

1. Evaluate your risks. Your business may have employees, equipment, buildings, vehicles and furniture. Taking stock of what’s at stake can help determine what commercial insurance policies you need to minimize your risk.
2. Find an experienced agent. Many factors determine your risk and coverage needs. Working with an experienced and knowledgeable agent can ensure you get the right policies to protect your business.
3. Shop around and compare quotes. Coverage options, limits and prices vary significantly from company to company. Comparing quotes from several companies is the best way to get the coverage you need at the best price.
4. Reassess annually. A lot can happen in a year, like buying or selling property or vehicles, hiring or losing employees or expanding your operating radius. Schedule an annual checkup with your insurance agent to discuss the changes in your business to see if they affect your policy and coverage needs. 

“To find the right policy to fit your LLC’s needs, it’s important to consider your profession, how many employees you have, your policy’s limits and deductible,” says Diane Gannon, senior sales producer for insurance broker Insureon.