The LLC Owner’s Guide to Commercial Insurance

What is a Limited Liability Company (LLC)?

An LLC is a type of business structure that blends elements of a corporation, partnership, and a sole proprietorship. If you own an LLC, you are referred to as a “member.”

​

What are the benefits of forming an LLC?

• It is usually, though not always, possible to protect a business owner's personal assets (for example, bank accounts and your home) if the business is sued. However, this protection is subject to limitations.
• It is relatively easy for you to set up an LLC. For more information, see the SBA's guide, Launch Your Business.
• LLCs have a flexible tax structure, allowing members to choose how to be taxed (as a sole proprietorship or partnership or as a C-corporation or S-corporation)

What are the drawbacks of setting up an LLC?

• LLCs can cost more to set up than a sole proprietorship.
• Since LLCs do not issue shares like a corporation, it can be more difficult to transfer ownership. Additionally, the absence of shares can make it more difficult to draw in investors if that is the type of funding you are considering.

What kind of insurance does an LLC have to have?

The federal government requires every business with employees to have the following types of insurance:

• Workers’ compensation insurance
• Unemployment
• Disability insurance (Get business insurance, 2022)

Insurance requirements also vary by state, so be sure to check your obligations in the state you live in. For example, here’s a Commercial Insurance Guide for California, published by the California Department of Insurance.

Do I need insurance to run an LLC?

Just setting up an LLC doesn't mean you need insurance (yet!), but you should definitely get insurance before you start running your LLC. We strongly advise you to secure insurance from the very first day to protect your personal assets, protect your business should a claim ever be made, and make doing business easier, as many clients will request proof of insurance through a COI (Certificate of Insurance).

​

What insurance should an LLC have?

In addition to workers' comp, unemployment, and disability insurance, here are the most common types of insurance an LLC should look into:

• General liability insurance
• Professional liability insurance
• Product liability insurance
• Commercial property insurance
• Commercial auto (don’t rely on your personal auto policy to cover your business-related auto risks)
• Cyber insurance
• Industry-specific coverage
• Home-based business insurance
• Business owner’s policy (BOP)
• 
  

Find our guide to different types of insurance HERE or CONTACT US to talk through policy options for your LLC.

Where can an LLC buy insurance?

Find a reliable commercial broker who will take the time to understand your particular risks and explain the various policies to you. One advantage of using a broker is that they will search for all the available options for your LLC and connect you with the best coverage, as opposed to just offering off-the-shelf coverage. You should be willing to consider topics other than just price and premiums, looking at risk reduction as a whole, along with the long-term health and sustainability of your business.

​

How much is LLC insurance per month?

The total cost will vary depending on the type of industry you’re in, the state you’re operating in, the number of employees you have, and many other factors and exposures. Below are rough ballpark totals for general liability insurance alone.

A professional service provider in CA generating about $1 million in annual revenue

Rough estimate of premium: $600-$2,000/year or $50-$170/month

A restaurant in CA generating about $1 million in annual revenue

Rough estimate of premium: $2,000-$6,000/year or $170-$500/month

A construction company in CA generating about $1 million in annual revenue
Rough estimate of premium: $4,000-$15,000/year or $330-$1,250/month

These are estimates, not quotes.

Should I insure myself or my LLC?

The LLC is separate from its owner, so you should get insurance for your LLC and make certain that the policy covers you in your capacity as an owner or member of the LLC. It is important that your broker knows about your LLC so that you buy the policy in the name of the LLC and not just in your own name.

How often do I need to update my insurance if I own an LLC?

Insurance renewals happen each year, and it’s important to update your broker about any changes in your business such as new equipment or vehicles, property valuation changes, new team members, expanded or modified services, and more. 

How can I save money on LLC insurance? 

We understand a business owner's desire to lower their insurance premium, and we take pride in matching our clients with policies that deliver the best value, not just the best price. The best value looks like:

• Shopping the insurance marketplace to find you the most appropriate coverage at the best rate
• Asking you if your business and its workers are properly classified (e.g., ensuring all of your contractors are operating as contractors, and all of your employees are operating as employees)
• Weighing out deductibles versus premiums
• Exploring bundled pricing, such as that found in a Business Owners’ Policy (BOP)
• Helping you kickstart safety best practices and documentation, which can help reduce risks, claims, and costs
• Advising you on other business services like HR, health benefits, and compliance tracking to keep your business compliant, competitive, and healthy

Next steps for LLC owners:

If you operate or plan to operate an LLC, congratulations! As a midsized business that grew from a small team to a team of more than two dozen people serving businesses across 30+ states, we understand the decisions that come with your role. We have served more than 20,000 clients since 2010, and would be happy to help you navigate the best insurance options for your LLC. Get in touch.

Sources:

• Zywave Small Business Insights: What is a Limited Liability Corporation (LLC)?
• U.S. Small Business Administration: Launch Your Business
• Cal OSBA: Get Business Insurance
• NAIC: Search Insurance Departments

This article is general education, not legal advice or a coverage determination. Coverage terms are based on standard business auto and personal auto forms; your actual policy may differ, and statutes apply to specific rental and vehicle types. Confirm your own coverage with us before relying on any of the above.