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Protecting Your Assets: How to Choose an LLC Business Insurance?

By Adnan Farooqui

Published on 26 Jun 2023 6 min read

The risk to your personal assets is reduced considerably once you set up an LLC, but what about your business assets? You can’t just leave them completely unprotected. That’s why you need LLC business insurance. It will protect your company against claims resulting from improper work, bodily injury, etc.

These aren’t the only reasons why you should get business insurance. You may be required to maintain some coverage to comply with local or state regulations. Let’s take a closer look at why you should get a business insurance policy and the most common types of policies to choose from.

Why Does Your LLC Need Business Insurance?

Nobody can predict the future and even if your business has never been sued since you set it up, who’s to say a client won’t go to court over a perceived breach of contract? Perhaps you invest in expensive equipment and it gets damaged. How would you repair or replace it?

Having an insurance policy will mitigate the risk. You won’t have to pay out of pocket for legal expenses, claims, or equipment replacement. If the business doesn’t have adequate coverage, it may need to dip into its cash or sell its assets to pay for these expenses, potentially bankrupting it.

Since your LLC can hire employees, most states will also require businesses to have workers’ compensation insurance. It will enable you to cover hospital bills, lost wages, and additional expenses resulting from workplace injuries.

9 Common Types of LLC Business Insurances

Several different types of coverage can collectively be called LLC business insurance. They’re often bundled together to provide LLCs with protection in case there’s an accident in the normal course of business. Most LLCs will typically have some or all of these common types of business insurance. 

General Liability Insurance

A general liability insurance policy protects against claims arising from normal business operations. These could be a result of bodily injury, advertising injury, property damage, legal defense costs, etc. Most small business owners will opt for general liability insurance as it casts a wide net of protection against the most common claims.

Professional Liability Insurance

This liability policy is important for any business that offers professional services such as accounting, financial planning, consulting, personal training, etc. In the event that your business makes a mistake that harms a client or the client claims copyright infringement, negligence, etc, it’ll have the necessary coverage to pay out those claims.

Product Liability Insurance

Those who are in the business of creating, manufacturing, distributing, or selling physical products should opt for product liability insurance. It will help cover legal costs and damages should any of the products cause damage or injuries to customers due to factors such as improper safety mechanisms, shoddy build quality, etc.

Commercial Property Insurance

Property insurance isn’t just for homeowners. Your LLC will likely have some commercial property. This may include equipment, furniture, or inventory. If the property is damaged or destroyed, even due to accidents such as fire, as long as you have this coverage, you have a great shot at getting the insurance company to foot the bill.

Home-Based Business Insurance

Home-based businesses such as tutors, freelance writers, photographers, etc. also need insurance coverage, even though it may seem unlikely that you’d ever need the coverage since the business is being run from home. This policy can help pay for accidents, injuries, property damage, and other claims when they arise. For example, if you were to lose your business equipment in a house fire, this insurance would at least cover some of the costs.

Business Owner’s Policy

A business owner’s policy provides three of the most common coverage types in one policy: general liability insurance, business interruption insurance, and commercial property insurance. It’s an easier way for business owners to maintain baseline coverage without having to buy each policy separately as that can often be expensive.

Business Income Insurance

If your business has to close down due to a problem that’s covered by your business income insurance policy, such as a flood or fire, it will help cover expenses such as payroll, lost income, temporary relocation, etc. until normal operations can be resumed. This is also referred to as business interruption insurance.

Workers’ Compensation Insurance

This policy helps LLCs cover lost wages, medical bills, and other expenses resulting from workplace injuries or illnesses that may not be covered by health insurance. Most states require small businesses with at least one employee to have workers’ compensation insurance.

Commercial Auto Insurance

An auto policy is highly recommended if you or your employees use a vehicle for business activities such as meeting clients or making deliveries. Your personal auto insurance will most likely not include coverage for business use. Commercial auto insurance will cover costs incurred as a result of an accident.

How to Choose the Business Insurance for Your LLC in 5 Steps?

There are a few steps that you need to follow to choose the right small business insurance. Doing a bit of homework before signing up for a policy will ensure that you get the coverage that you require at the best price possible. Following are five steps that should help in choosing the right insurance for your small business:

1. Research Different Insurance Providers and Policies

There isn’t one go-to insurance company that everyone uses. The available options may differ depending on where you’re based and the type of insurance you require. Take some time to properly research all the available insurance providers, the policies they offer, and any exclusions that they may have. Evaluate them based on the data you gather to make an informed decision. 

2. Assess Your Risks and Coverage Needs

You must assess business risks first before deciding which coverage is necessary. There’s no point in paying for something that you’re not going to utilize. For example, you won’t require commercial auto insurance if your business doesn’t utilize vehicles. Similarly, you don’t want to overlook a clear risk and run the business without having adequate coverage for it.

3. Determine Your Budget and Deductible

The deductible is the amount you have to pay for coverage services before the insurance policy starts to pay. For example, on a policy with a $1,000 deductible, you’ll pay the first $1,000 out of your pocket and the rest of the amount will be covered by the insurance company. Evaluate the different policies to find out what your financial exposure will be with the ones you choose.

4. Review and Compare Quotes, Policy Terms, and Exclusions from Different Providers

Get quotes from different insurance providers and pick the most suitable one. Read the policy terms and understand what exclusions there may be. You can also negotiate with the providers to get a better quote, and adjust the terms and exclusions to create a policy that best suits the needs of your business.

5. Purchase and Maintain Your Insurance Coverage

Once you find the right policy, go ahead and sign the dotted line. In addition to the initial payment, you’ll be required to make ongoing premium payments. The insurance premium is the payment you must make to keep the policy. This is paid upon the expiry of the existing policy to maintain its validity.

Insurance Reduces the Risk of Bankruptcy for Your Business 

Your business will be exposed to huge financial risks if it doesn’t have the necessary insurance coverage. Any incident or lawsuit could end up bankrupting it. You may also be required to get insurance to comply with regulatory requirements in some states. It’s best to figure out your insurance needs once you’ve set up your LLC to ensure smooth sailing in the future. 

Get started by contacting Doola’s bookkeeping professionals, who can help with everything, from setting up an LLC in your preferred state to handling all the paperwork and managing your business finances. This will give you time to focus on taking your business to new heights.

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