Q: Do I have to get business insurance for my LLC?
Thank you to Steve, owner of Ocotillo Nutrition and Wellness (@ocotillo_fitness_and_nutrition), from Arizona for that great question! Business insurance can help protect your LLC in case of lawsuits, workplace accidents, property damage, and other risks that can occur when running a business. There are several kinds of business insurance, and the best insurance for you will depend on your particular business needs. We’ll explain how it works.
What does business insurance cover?
What business insurance covers depends on the type of insurance you get:
- General liability insurance—covers financial loss due to physical injury, property damage, libel, lawsuits, and settlement costs.
- Product liability insurance—covers loss due to a defective product causing physical harm.
- Professional liability insurance—covers loss due to malpractice or errors in service-related businesses, such as medical or legal practices.
- Commercial property insurance—protects company property (more broadly than general liability insurance) from risks such as natural disasters and vandalism.
- Home-based business insurance—can be added to homeowner’s insurance to protect small amounts of business equipment for home-based businesses.
- Business owner’s policy—a general insurance policy for small business owners that combines a range of coverage options and can save you money.
Do I need business insurance for my LLC?
Probably. Most LLCs will benefit from getting some kind of business insurance. While LLCs already have limited liability status—meaning that LLC owners’ personal assets are protected in the case of a lawsuit—limited liability status is not bulletproof and does not protect business assets. So if your business loses money or property due to a lawsuit, natural disaster, or other risk, you’re not protected unless you have insurance.
How much business insurance do I need?
To decide how much insurance you should get for your business, you should find out what is legally required in your state. Some states require LLCs to have certain insurance types. For example, if your business has employees, you’re also required to purchase workers compensation, unemployment, and disability insurance.
You should also consider which potential liabilities your business has. Does your business own a substantial amount of property? You might need commercial property insurance. Is there a risk of customers being physically injured at your business? You may need general liability insurance. If you’re unsure of what kind of business insurance to get, consult a business attorney about your specific insurance needs.
Find out more about How to Minimize Risk When Starting a Business.