Registering our business as a limited liability company, or LLC will help us protect our assets and reduce liability. However, we may wonder if a single-member LLC needs insurance because this business structure only protects personal property from lawsuits, being limited protection.
For this reason, while an LLC will protect our assets, and they will be treated separately from our business, we may need an insurance policy. This is because, in some instances, we may be held personally liable for problems related to our business, such as excessive debt.
What are the limits of an LLC?
The protections offered by an LLC structure for our business do not cover every situation we may face. In some cases, these protections will not be sufficient, such as:
- A mix of personal and business expenses.
- If we hurt someone personally.
- If we did something irresponsible or negligent.
- If we signed a personal guarantee for a loan.
- If we did not deposit taxes withheld from employees’ wages.
- If we did something illegal or fraudulent.
- If someone slipped and fell in our office or store.
We can be sued for anything, even if we are not at fault. To deal with these lawsuits, we will have to have a good lawyer, so it will always be better to have an insurance policy that will take care of these costs, protecting our assets.
What insurance is needed for these companies?
We will likely not need workers’ compensation insurance if we have a business where only one or two people work from home. However, we will most likely need property and liability insurance, which can be provided in the basic homeowner’s policy.
But, by law, all businesses with employees must obtain workers’ compensation, unemployment, and disability insurance. In some states, additional insurance is required, but it all varies depending on the state.
Is it necessary to have business insurance for an LLC?
It is a good idea to have business insurance for our LLC because, without insurance coverage, we would be faced with paying claims costs out of pocket. Depending on the type of business we manage, and the risks we face, one or another type of insurance will be necessary.
LLCs may be required to hold certain types of business insurance, and in most states, workers’ compensation insurance will be required. It is best to look for insurance that will protect our business property and possessions while covering legal costs in case of a lawsuit.
Types of Coverage Available for Limited Liability Companies
We may find different types of coverage to choose from in our insurance policies. Among the main ones to consider are
Even though we strive to keep our clients happy, mistakes may occur. Professional liability insurance, errors and omissions, or E&O coverage will be necessary in these cases.
We can have coverage covering the expenses if any clerical errors are made. This type of insurance will help cover legal costs related to customer claims.
This type of insurance is also known as commercial liability and can help protect us against claims for bodily injury or property damage to another person. Without this type of insurance, we would assume customers’ expenses for accidents in our business.
This type of insurance also allows us to cover personal injuries or claims made by customers for slander or defamation. This insurance is a very good option for most businesses and will go a long way in protecting our business.
Additional coverages we may want to consider
Even though it is a small LLC, we may have other types of insurance to help protect us against other liabilities. Among these are:
- Workers’ compensation: This coverage is required in most states and will protect employees against work-related injuries or illnesses.
- Commercial Automobile: allows coverage for property damage or medical expenses in an automobile accident. This insurance is essential if our company uses work vehicles.
- Commercial income: If our business cannot open due to property damage, the insurance will help cover the loss of income.
- Commercial property: It allows us to protect our LLC’s physical location and the tools and inventory used to operate.
How much does an LLC insurance policy cost?
Commercial insurance for small businesses varies depending on the coverage they offer and our company. In general, policies for these businesses have the following approximate costs:
- Business policies typically cost around $3000, with monthly premiums around $300.
- General Liability: average premiums are usually a little over $1000, with a monthly premium approaching $100.
- Workers’ compensation: these insurances usually have an average premium of around $900, with a monthly cost of approximately $80.
However, these costs are only approximate since, depending on the insurance company chosen and our company, they may vary.
How to save money on insurance for a small business?
Ideally, we should have our company’s coverage function properly. For this reason, we must look at all the coverages we need before taking out insurance.
In the cases of these businesses, we will need more than one coverage, and many insurance companies offer us the benefit of bundling different types of insurance.
This is the best way to save money on our insurance policies because we will be given a special price for contracting all the coverages we need with the same company.