LLC Insurance Cost

Last Updated on December 27, 2023
Written by CPA Alec Pow | Content Reviewed by CFA Alexander Popinker

When starting a new business, the first step most people do is to form a limited liability company (LLC). By doing this, your personal assets will be separated from those of the business. Though this will only protect you from being held personally responsible and your company will still be liable for the risk of doing business. The best way to protect your business is with LLC insurance.

How much does LLC insurance cost?

The cost of LLC insurance is influenced by both the type of coverage you would like to add to your policy and the business itself. In general, insurance companies base their premiums on several factors such as the number of employees and payroll, your insurance history, the risk implied by your work, and whether your location makes you more susceptible to litigation.

The cost of most LLC insurance policies would be anywhere between $360 and $5,000 per year, and these will combine coverage for property and liability. For example, the costs for a small accounting firm would be around $360 per year as this is considered to be at low risk. On the other hand, the costs for a delivery business with several vehicles will be around $2,000 per year because this is considered a higher risk.

LLC insurance overview

LLC insurance is a type of policy that offers coverage for a company against different risks that may appear during business operations. It offers a mix of professional and general policies which protect your business and cover it against claims from damage or injury caused by your employees, products, or services.

Types of insurance your company may need

LLC insurance provides different types of coverage for various needs of every industry and your company in particular.

Worker’s compensation insurance: This insurance is required in many states for businesses to operate. Worker’s compensation offers coverage for lost wages and medical expenses in case an employee becomes ill or is injured while working.

General liability insurance: Offers protection for your company in case of accident or injury claims, misleading or false advertisement, and property damage. It pays the related expenses and costs.

Business income insurance: In case you are not able to run your business, it will replace the lost income.

Product liability insurance: Offers protection for the lawsuits that result from property damage or injury caused by your products.

Commercial auto insurance: Provides coverage for the damage where a business-owned vehicle is involved.

Professional liability insurance: Companies that offer consulting or other types of services are at risk of claims that result from omissions, alleged malpractice, negligence and/or errors. Professional liability insurance offers coverage for related damages and legal costs.

Property damage insurance: Offers coverage for your business property against human and natural caused disasters.

Directors and officers liability: The officers and directors of your company are protect if they are accused of wrongdoings. This helps to pay for damages and legal expenses.

What does LLC insurance cover?

LLC insurance offers coverage for the following liabilities related to business administration:

• Legal costs;
• Illness or bodily injury to third parties, employees or clients;
• Business-owned vehicle accidents;
• Property damage;
• Damage to business assets;
• Misleading or false advertising;
• Omissions, malpractice, negligence or errors.

The policy package you choose will affect your specific coverage. Each company has its own particular risks and the basic LLC insurance will protect your business from most of the potential risks. Make sure you review your policy and understand what it will cover, so if there are any gaps you can add specialized insurance to fill them.

What does LLC insurance not cover?

There are some situations that are not covered by the LLC insurance, such as:

• Mixing personal and business expenses;
• Personally injuring someone;
• Criminal or negligent behavior;
• Incorrectly paying business taxes;
• Signing a personal loan guarantee;
• Engaging in irresponsible, reckless or fraudulent behavior.

Advantages of LLC insurance

LLC insurance provides many advantages to protect your business against risks:

Offers coverage for legal expenses: In case a third party, employee or customer files a lawsuit against your company, LLC insurance will cover the costs, including damages and attorney’s fees.

Complying with regulations: You may be required to have certain types of insurance to operate in your state, such as unemployment tax, disability or worker’s compensation. You will be put in compliance when adding such coverage to your LLC insurance.

Protecting company assets: In case a third party, employee or customer gets injured on your property, or in case your services provoke harm, your business can be liable and if you don’t have a LLC insurance, the company’s assets can be liquidated to cover the expenses.

Tips for purchasing

If you need to purchase a LLC insurance, take into consideration these tips before making a decision:

Compare quotes: The price of the policy will vary significantly from one insurance provider to another. Be sure that your agent presents you many quotes, so you can choose the one the offers the best coverage at a fair cost.

Work with an independent agent: It may be pretty difficult to understand the LLC insurance as it is very complex and there are many companies which offer this service. With the help of an independent agent, you will be able to choose a broker and policy that serves your business best.

Insurance bundling: You may be able to save on insurance premiums if you bundle your different insurance needs.

How to save on LLC insurance during a recession?

There are risks for your company in both good and bad times, but in the middle of a recession, the stakes become even higher. In times of uncertainty, you may take actions to reduce the expenses with your business, but it may not be necessary to also reduce your coverage. You may have saved money through the policy change you have already done. Take into consideration the next possibilities:

Pay-as-you-go: There are insurance companies that will allow you to pay the premiums per month, instead of paying large sums of money upfront. This way you will have more money on your disposal.

Reduce your insurance providers: Your bookkeeping will be simplified and the broker will be able to offers discounts, if you buy more of your insurance needs from one source.

Reducing your workforce: The number of employees directly affects the cost of workers’ compensation insurance. Your rate might decrease in case you were forced to make some layoffs.

FAQs

Is LLC insurance mandatory?

It depends on your location and industry. For instance, the workers’ compensation insurance is required in most states, while others may also require unemployment tax and disability insurance. Most experts recommend purchasing general LLC insurance even though this is not mandatory.

Doesn’t the limited liability company already act as LLC insurance?

The answer is no. Creating a limited liability company will only prevent your personal assets from being used to cover the expenses with the damages caused by your enterprise.

Why do I need LLC insurance?

When you own a business, there are many risks associated with your actions, which are also outside of your control. LLC insurance offers coverage for the financial devastation of asset loss or lawsuits.

Conclusion

With LLC insurance your business will be protected against the bankruptcy or financial hit that follows a lawsuit. If you understand the cost of LLC insurance and are able to determine which are the needs of your company, you can choose the policy that covers all potential risks. This way your business will be protected and you will feel safer.