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What is LLC Insurance and Do You Need It?

7-minute read

A group of LLC employees are talking at work
Ed Grasso

Ed Grasso

28 July 2021

Limited. Liability. Company. An LLC. Put these three words after the name of your small business and it immediately has the ring of “Bond. James Bond.” Professional, sophisticated, and able to take on just about anything.

But just as a well-known secret agent doesn’t take on an assignment without some additional outfitting from his quartermaster, you also should consider some additional protection to go along with your LLC status: LLC insurance.

Let’s start with what it is, and then get into why you might need it.

What is LLC Insurance?

Structuring your business as an LLC has already given you some protection by potentially shielding your home, vehicles, and other personal assets from any claims or debts from your business.

However, an LLC itself doesn’t offer protection against business obligations or lawsuits. That’s what LLC business insurance does.

Think of LLC insurance as an ejector seat that launches a secret agent to safety right before their cool sports car shoots off a cliff. You hope you never need to use it, but you’re extremely glad it’s there when you do.

Insurance for an LLC can often be a combination of different types of business insurance policies. The ones that are right for your LLC will depend on the type of business you have.

Here are the big 3:

1. General liability insurance.

When it comes to LLC insurance, general liability (GL) insurance is one of the most important (and popular) policies to get. This is especially true if your LLC works with customers or vendors. A GL policy can cover costs that may come with accidents, injuries, and damage to someone else or their property.

General liability insurance can usually cover:

  • Bodily injury to another person (e.g., a customer)
  • Third-party property damage
  • Personal and advertising injury
  • Medical expenses

Here’s how it can work. Imagine you’re running a carpet cleaning business. You’re cleaning a customer’s carpet when your machine’s fluid reservoir explodes. All of that liquid leaks through the carpet and damages the wood floor underneath. No way to sweep that under the rug.

Now imagine you had the foresight to get general liability insurance. Your policy could cover damages related to the wood floor, as well as legal fees if your customer sues you. Without it, you might have to clean out your bank account.

You don’t need to just operate heavy equipment or work on someone’s home to benefit from GL insurance. Let’s say you’re a massage therapist. Your biggest piece of gear is likely a padded massage table, so what could possibly go wrong there?

How about if, while setting up your table in a client’s home, you accidentally knock over and shatter an expensive antique vase? Turns out it was recently appraised for several thousand dollars. OK. Relax your muscles and breathe slowly. With general liability insurance, you’re covered for the damage.

2. Professional liability insurance.

Three key areas that may lead you to consider professional liability insurance are mistakes, errors, and negligence. All of which makes it well-suited for human beings.

While general liability insurance covers claims where someone gets hurt or something is damaged, professional liability insurance covers incidents where there’s a financial loss due to a mistake, oversight, or negligence caused by your business.

If your business performs professional services, such as accounting, architecture, interior design, or consulting, it makes sense to get professional liability insurance at the get-go.

Your PL policy usually covers:

  • Negligence or alleged negligence
  • Legal defense costs
  • Omissions or alleged omissions
  • Copyright infringement
  • Claims and damages

For example, let’s say you run an LLC that offers life coaching services. You have a client with a high-pressure job who is experiencing a great deal of stress and anxiety.

After several coaching sessions, you suggest that a major lifestyle change may be necessary to reduce the client’s stress level, but you recommend that they start with small steps.

In response, the client takes some big steps. They sell their house and move across the country in an effort to change their life situation. A few months pass, and the client still isn’t happy, so they sue you for giving them bad advice.

Even as a life coach, you may need some coaching yourself on what to do. Fortunately, if you have professional liability insurance, any associated costs, including a settlement, are usually covered (up to your policy’s limit).

Here’s another example: You run a small tax preparation business with two part-time employees. During the busy tax season, one of your employees is overtired and makes a minor error on a client’s tax return.

While you can understand the reason why the mistake happened, it’s no solace when the client gets audited and sues your LLC for negligence.

3. Workers compensation insurance.

Many business owners choose an LLC because their business has grown or is growing quickly. That usually means they also have employees working for them.

Even with just one employee, it’s a good idea to have workers compensation insurance. This type of policy is usually required by law and can help protect you if an employee gets injured or sick while working for you.

If you have workers compensation, your policy can help cover costs associated with:

  • Medical bills
  • Employee’s lost wages
  • Rehabilitation expenses
  • Death benefits

Aside from the legal requirement, getting workers compensation insurance is a good idea anyway. Work injuries are fairly common in the United States — and costly too! On average, a workers’ compensation claim can be as much as $40,000.

Without coverage, an employee could sue you, and you could be responsible for that much amount or more.

Signs You May Need LLC Insurance

OK, you may be thinking, “Sure, the people in the above examples needed LLC insurance. But do I really need it for my particular business?”

We’re in the insurance business, so we’re certainly going to recommend it, but here are a few other considerations to keep in mind if you’re still on the fence.

1. You have a lot at stake.

Some businesses come with more risk than others (e.g., being a roofer versus a music teacher). Beyond the risk of doing what you do, there’s also the risk of losing everything you’ve built.

Plus, if you’re running your business as an LLC, you’ve already invested a good amount of time and money to do so. Why not safeguard it? As your business grows, there’s a lot more on the line. Once you start picking up more customers and bigger contracts, you have a lot more to protect.

According to an industry study, four out of 10 small businesses will experience an event that triggers an insurance claim within any given 10-year period.

The same study also revealed that the average cost of a customer injury or damage claim for small businesses is $30,000.

Compare that with the cost of a general liability policy. In fact, with Simply Business, you can compare policy quotes from multiple insurance companies. With some as low as $25.95 * per month, LLC insurance can be a lot less expensive than paying a five-figure settlement.

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2. You’re working with larger customers.

You may be at the point where the majority of your customers are businesses rather than individuals (e.g., your landscaping business handles a lot of office buildings and commercial locations rather than private homes). Having LLC insurance is often required to get through the vendor approval process you’ll likely encounter.

Plus, it can help you look more like a serious player when you’re going after the business. It can show a potential customer that you’ve taken steps to protect yourself and your business from liability. This matters, because if you don’t have coverage, the liability for a claim could fall on them.

3. You’re looking for funding.

Much like large customers, banks and other financial institutions will likely want to know you have the right insurance coverage before they approve any type of loan. They want to make sure a lawsuit doesn't shut down your business and prevent you from repaying your loan.

The same can also be true if you’re thinking of bringing on new members to your LLC ownership group. They want to feel confident that there’s protection for their investment.

4. You have a website.

It’s extremely rare to be in business today without a website or other type of online presence. And whether you're 100% online or not, there still can be online risks to your business.

These often fall into the category of “advertising injury.” They include claims of stolen ideas; invasion of privacy; and libel, slander, and copyright infringement related to advertising. That’s where general liability insurance can help.

For example, based on your knowledge, you claim on your website that a competitor’s product causes hair loss. Turns out that’s not true and your competitor sues you for libel. Without insurance, you could be responsible for paying any settlement and any associated legal fees.

Advertising injury also can occur from seemingly good intentions. Perhaps you have a customer who sent you an email with a glowing review. You’re excited and publish their comments and their picture on your webpage.

Unfortunately, you didn’t get permission to use their image and review, and they bring a claim against you for violation of privacy.

Having general liability insurance can help cover your legal and settlement costs from the case.

5. You like to sleep at night.

Running a small business is no small endeavor. Marketing, hiring, planning, billing, payroll — there’s a good chance all that falls on you. Then, somewhere among all those tasks, you need to actually do whatever it is you do to generate some income to keep the lights on.

And those are just the things you know about and can expect. Unfortunately, 43% of small business owners polled reported being involved in a lawsuit or threatened by one.

The last thing you need is a nagging worry that you could be at risk of losing everything you’ve worked so hard for. The first thing you can do to help erase that concern from your mind is to get the LLC insurance that’s right for your business.

That’s where we come in. We specialize in business insurance for LLCs, sole proprietorships, and other types of small and micro businesses. We’ve helped thousands of business owners get the coverage they need, and in turn, the sleep they need as well.

Get Insured and Get on with Business

An LLC not only comes with limited liability, it usually comes with limited time to get everything done as well.

We get it. That’s why we’ve stripped down our process to make it fast and easy to get LLC insurance. Whether you start online or speak with one of our small business insurance pros at 844-654-7272, we can usually get you insured and on your way in less than 10 minutes. We’re available Monday through Friday, 8 a.m. to 8 p.m. ET.

We cut through the jargon and complex terminology. We ask only a handful of questions. And we find quotes from the nation’s top insurers so you can choose the best coverage and the best price for you.

We just want to get the job done. Just like you.

* Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on January - December 2020 data of 10% of our total policies sold.

Ed Grasso

Written by

Ed Grasso

As a 9-year-old at summer camp, I hated it — especially after being pulled screaming from the pool during the swimming competition. While this left me without an aquatic achievement patch, it also inspired the letter to my parents that got me an early release from Camp Willard. That showed me the power of writing. I’ve done my best to use it only for good ever since, such as writing for small business owners.

This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer

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