Have you set up your small business as a limited liability company (LLC) because you’re risk adverse and want to protect your personal assets against business related lawsuits and other issues? Maybe you’re thinking about structuring your small business as an LLC. Getting business insurance for your LLC is another step to further protect your LLCs against possible lawsuits. Business insurance for LLCs can be expensive. This article discusses the cost of business insurance for LLCs, the types of coverage you should get for your LLCs, and how to reduce your LLC insurance cost.
- How much does LLC business insurance cost?
- How much does LLC liability insurance cost?
- How much does general liability insurance cost for LLCs?
- What factors affect the LLC insurance cost?
- How to find cheap LLC insurance coverage?
- What is LLC business insurance?
- Is business insurance required for an LLC?
- Best LLC insurance companies
Before selecting a structure for your business, check with a lawyer who can explore your options with you.
How much does LLC insurance cost?
On average, an LLC pays $600 to $1,200 a year, or $50-$100 a month, for their Business Owners Policy (BOP), the most popular business insurance policy for LLCs. Business Owners Policy is a bundled policy combining general liability and commercial property coverages in one single policy, making it convenient and cost savings for LLCs.
If they add more coverages, it will increase the costs.
Below are the cost breakdowns for different coverages LLCs might need.
|LLC insurance coverages
|Business Owners Policy (BOP)
|$85 a month
|Commercial auto insurance
|$120 a month
|Workers comp insurance
|$165 a month per employee
Whichever coverage you decide to buy for your LLC, make sure to shop around with a few companies or with digital broker like CoverWallet, Simply Business, ez.insure, or Commercialinsurance.net so that you can compare several quotes to choose the best and the cheapest one for you.
How much does LLC liability insurance cost?
The average cost of LLC liability insurance is $95 per month, or $1,140 per year. This is for both general liability insurance and professional liability insurance coverages. These are the two most popular policies for liability coverages for any LLCs. Most LLCs need general liability insurance, some should have professional liability coverage as well.
In addition to general liability and professional liability coverages, LLCs also need workers comp insurance coverage if they hire employees and commercial auto insurance if they use any vehicle for business purposes. Below are the the average cost summary of these 4 liability coverages that LLCs may need.
|LLC insurance coverages
|General liability insurance
|$50 a month
|Professional liability insurance
|$45 a month
|Commercial auto insurance
|$120 a month
|Workers comp insurance
|$135 per month per employee
How much does general liability insurance cost for LLCs?
If any LLC can only afford one insurance policy, you should buy general liability insurance. This coverage protects LLCs from lawsuits related to bodily injuries or property damages to any third party caused in their business locations or by their business operations.
Example: Imagine that you own a decorating business. A client visits your office and trips on a carpet and breaks an ankle. General liability insurance would help pay his medical costs. Also, if an employee breaks an expensive vase while arranging some furniture at the client’s home, general liability protection will help pay the costs to replace it.
General liability insurance can also help cover claims if you make an mistake in promoting your business or infringe on a copyright.
Example: If you publish an ad for your business and it features a photo you don’t have permission to use and you’re sued for copyright infringement, a general liability policy can help cover costs that result from the claim.
Learn more at the best general liability insurance companies for LLCs
The average cost of general liability insurance for LLCs is $50 per month. 80% LLCs pay between $30 to $150 per month, or $360 to $1,800 per year.
LLCs in some industries pay a lot more due to the high risk nature of their industries. For example, construction LLCs or roofing or tree cutting LLCs can up up to $500 a month for their general liability insurance policy. On the other hand, LLCs in financial services such as accounting firms or financial advisors pay a lot less, around $30 per month for a general liability insurance policy.
Learn more at the best general liability insurance companies for LLCs
Professional liability insurance cost for LLCs
Mistakes can happen even at the most careful and by-the-book operations. Professional liability insurance (also known as errors and omissions insurance or E&O coverage) protects you and your LLC if a client of customer sues you because you or someone who works for you makes a mistake providing services to them.
Example: Imagine that you’re the owner of an accounting firm. One of your employees makes an accounting error. The mistake leads to a many thousand dollar penalty that your client is forced to pay. They sue your business to recover the penalty. Professional liability insurance can help cover costs related to the claim.
The average cost of professional liability insurance for LLCs is $45 per month. Most small businesses pay around $30 – $110 per month. Some small businesses offering financial services like accounting or investment advice or legal advice may pay more than others like beauty salons or barber shops or catering businesses.
Workers’ compensation insurance cost for LLCs
Workers comp insurance provides benefits to people who work for you if they’re injured or become ill because of job-related reasons. Most states require this coverage for businesses that have employees.See more in the best workers comp insurance companies
The average workers comp insurance cost for LLCs is $135 per month per employee. Workers comp insurance cost varies significantly depending on several factors. Learn more at workers comp insurance cost details and how to calculate it.
Commercial auto insurance
Commercial auto insurance covers accidents and injuries that happen when you or your employees are driving a vehicle for business reasons. In most cases, on-the-job incidents aren’t covered by personal policies. See more in the best commercial auto insurance companies
The average cost of commercial auto insurance for LLCs is $120 per month. Similar to other coverages, commercial auto insurance cost varies widely. Learn more about the details at commercial auto insurance costs
Commercial property insurance
Commercial property insurance covers damage and losses to your business location and its contents if they’re damaged by a fire or covered weather event or your company experiences a burglary or theft. See more in the best commercial property insurance companies
The average cost of commercial property insurance for LLCs is $2,000 per year, or $182 per month. Learn more at how much commercial property insurance costs.
However, many LLCs choose to buy Business Owners Policy (BOP), which is a bundled policy combing general liability insurance and commercial property coverage in one policy to save money.
Business Owners Policy (BOP) insurance cost for LLCs
Business Owners Policy (BOP) is a the most popular business insurance policy for LLCs, especially small ones. If your LLC has less than $10 million in revenue or less than 100 employees, you may want to consider this policy. It bundles both general liability and commercial property coverages in one policy to save small businesses money and efforts to manage the policy.
Business income insurance cost for LLCs
Business income interruption insurance can replace lost income if your business is unable to operate for covered reasons. See more in the best business income interruption insurance companies
The average business income insurance cost for LLCs is $65 per month, or $680 a year.
What factors affect the LLC insurance cost?
Many factors impact your LLC insurance premium cost. It depends on the type of small business you run and the risks that it faces.
Examples: A landscaping business may need commercial auto insurance because it depends on company-owned trucks for the work it does. An accounting firm’s employees may never need to drive for business, so the firm wouldn’t have to pay for this coverage. The landscaping company is also a higher-risk industry than the accounting firm when it comes to worker injuries and potential damage to property. However, the accounting firm may be more at risk professionally because it could be sued if an employee makes a calculation error. All these things and more would go into calculating LLC insurance premium costs.
Below are a few important factors affecting the LLC insurance cost:
Which coverages you get for your LLC
As we see above, an LLC may need and choose to buy different insurance coverages, which cost differently. The types of coverage that you choose to buy for your LLC affect the cost of your LLC insurance policy significantly. Commercial auto insurance or commercial truck insurance is usually more expensive than general liability or professional liability insurance.
Even for the same coverage, different industries are exposed to different types and levels of risks, which results in different costs. For example, for the same general liability coverage, a handyman LLC or business cleaning LLC will pay a lot more than an accounting firm or IT consulting firm. Similarly, for the same professional liability insurance policy, an accounting firm will pay a lot more than a business cleaning service, but they will pay a lot less than a lawyer or law office.
Insurance companies price business insurance policies based on the historical law suits and claims in the specific states and/or cities. If you are in the cities with a high historical lawsuit and claim rate, you are likely to pay more than your similar counterparts in a different part of the country.
Your firm’s claim record
Similar to car insurance rate, the more claims you file, the more expensive your LLC insurance will be. If your claims are settled unfavorable to you, that would have an even more negative impact on your insurance cost going forward. One way to avoid claims and lawsuits is to make sure safety and compliance come first in your business’s practice and employee training.
It should be no surprise that different insurance companies will offer you different quotes and rates. Insurance companies have their own underwriting engine that weighs different factors differently based on their historical experience and preference. Make sure you get quotes from a few companies to compare and select the best one for your LLC.
How to find cheap LLC insurance coverage?
Here are some tips to help you find the coverage you need at a fair price:
Shop around for the best value
Get quotes from a few companies or compare the multiple quotes generated by a service like CoverWallet or commercialinsurance.net. That is the only way to make sure you do not overpay for your LLC insurance.
Never stop shopping around
Make sure you get new quotes before you renew your LLC business insurance policy. Insurance companies update their underwriting policies frequently based on what they learn and how their business performs. Your current insurer may have offered you the cheapest quote a year ago, but may not be the cheapest today when you renew, so make sure you do your homework before renewing.
Choose the right coverages
As we learn above, different coverages cost differently. Some LLCs may need some coverages, but not the others. Make sure you consult with an experienced agent to advise you on the right coverages you need to protect your LLC. Buying the wrong coverage that is costly isn’t a mistake you want to make.
Choose the right coverage limits and deductibles
Higher coverage limits and lower deductibles increase the premiums. While you may not always be able to decrease coverage limits because minimum coverage is sometimes required, for example in commercial auto insurance, you can always increase deductibles to decrease premiums. Whenever possible, decreasing your policy’s coverage limit will help reduce the cost as well.
Maintain safety and compliance standards at your workplace
To reduce the lawsuit and claim probability, you need to implement safety and compliance standards at your workplace, including regular employee training programs. Emphasizing on safety and compliance practices at your workplace will help your employees and your customers pay attention to the right things to avoid accidents happening in the first place.
Take advantage of discounts
If they’re not offered to you when getting a quote, ask about them, whether you’re buying online or through an agent. Insurance companies always have a few discount programs in place. You may be eligible immediately for one or some of these discount programs. Even if you are not, you can become eligible in a few months if you implement what needs to be implemented in your workplace. At least, you’ll know how to reduce your LLC insurance premiums next time.
Taking these steps will help ensure you’re not paying too much for your LLC business coverage.
What is LLC business insurance?
Many small businesses register as LLCs. It allows them to separate business assets from personal belongings. Put simply, if you’re sued and someone wins the lawsuit, they would not be able to win any of your personal assets, such as your home, cars or jewelry.
However, it doesn’t protect your business from all the risks it faces. Depending on your industry, LLC insurance may be necessary.
LLC insurance is more formally known as limited liability company insurance. It helps protect LLCs from different types of liability claims, like bodily injury or property damage caused by your:
- And more.
Is business insurance required for an LLC?
If you have employees, it’s likely your state will require you to carry workers’ compensation insurance. Otherwise most coverages are voluntary. Still, LLCs face the same risks most businesses do and it’s a smart idea to get insurance to protect your operation. If you don’t have it, you could be forced to pay for property damage, theft, lawsuits, settlements and more with business assets. This often ruins companies, even ones protected by LLC agreements.
Best LLC insurance companies
The good news is that many insurance companies offer LLC insurance. The bad news is that it can be confusing and overwhelming if you want to look for a good provider. We have done the research and here are our recommendation for the top providers of LLC insurance.
- CoverWallet: Best for Comparison Shopping
- The Hartford: Best for Combining General Liability and Professional Liability Policies
- Hiscox: Best for Reasonable General Liability Insurance Quotes
- Suracy: Best for Specialty LLC’s
- Simply Business: Best for Those Needing Help Selecting Insurance
What is a limited liability company (or LLC)?
A limited liability company (LLC) is a way a business can be structured for legal, tax, and other purposes. Other options include things like corporations, partnerships and sole proprietorships. LLCs are governed by state, not U.S. government, laws, rules and regulations. You should work with a lawyer in your state if you are thinking about setting up a Limited Liability Company to make sure the rules governing it are aligned with how you want to run your business.
The owners of an LLC are known as members. Most states do not limit what can count as a member, so it could be an individual, corporation, other LLC or a foreign entity. There is no membership cap, so you can have as many as needed. Most states also allow LLCs with a single member, meaning the business owner is the only one.
There are a few types of businesses that usually cannot be LLCs. Examples include banks and insurance companies. There may also be special rules for foreign participation in LLCs. It’s a smart idea to consult with your tax advisor before setting up an LLC to ensure it will provide you with favorable tax status.
What are the benefits and disadvantages of setting up an LLC?
There are many attractive aspects of an LLC, including:
- It allows you to run your business how you want to, especially when compared with other business structures.
- You limit your personal liability and that of your business partners.
- You avoid double taxation, which is an issue you could face with certain other business structures.
- It could make it possible for you to avoid certain administrative and paperwork issues.
- You will likely enjoy greater flexibility in how you can distribute the profits your business earns.
The key benefit of an LLC is that you can enjoy significant freedom in how you run your business, while protecting your personal assets — and those of your members — against business risks. Put simply, no one will be able to sue you and take your home or other personal property if you or someone who works for you makes a workplace error that harms someone and your business is sued over it.
There are two key disadvantages of an LLC :
- Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. Many states charge higher fees to set them up and additional ones to maintain them.
- Ownership transfer: Ownership of an LLC is generally more difficult to transfer than with a corporation. It’s relatively simple to buy and sell stock shares in a corporation. Typically, with LLCs, all the members have to agree to any changes in membership.