Any time you launch a business, you’re opening yourself up to a certain level of risk which can be minimized by taking precautions like navigating business insurance for your LLC. It is important because maybe an unhappy customer or a disgruntled employee serves you with a lawsuit. Maybe you invest time and resources into a batch of products that proves defective. Maybe you get into a fender-bender with the company car, or seasonal flooding causes damage to your office space.
While there is no way for any business to avoid risk completely, there are practical steps that can help you minimize your vulnerability… and one of the most significant steps is to invest in the right type of business insurance for your LLC. A few types of insurance are especially broad in their utility and should be on the radar of any LLC owner. Whether you operate an LLC in Florida, Wyoming, or Delaware, here are some of the insurance types you need to know about.
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9 Essential Insurance Types for Your LLC
1) General Liability Insurance
General liability insurance can shield your LLC from claims of property damage or bodily injury. For example, if someone claims that they broke their leg when they slipped and fell down your staircase, or allege that your product resulted in some kind of damage to their household, general liability insurance can protect you. Note that general liability insurance typically does not cover the medical bills or lost wages of an employee who is injured on the job.
2) Commercial Property Insurance
Most homeowners have an insurance policy to protect their physical property from fire, flood, theft, and various natural disasters. Commercial property insurance works in a very similar way to homeowners insurance, with the distinction that it covers your business assets. Specifically, commercial property insurance can offer protection for your office furniture, computers, and other expensive equipment. Your coverage may also include external fixtures, such as the signage in your business storefront.
3) Worker’s Compensation Insurance
If you have at least one employee, you’ll want to sign up for a worker’s comp policy. (In fact, the majority of states require this by law.) Only “solopreneurs” are exempt from the worker’s comp requirement. Worker’s compensation insurance will help to cover the medical expenses of any employees who become injured or ill on the job, even covering lost wages.
4) Business Interruption Insurance
What happens if your business is forced to shut its doors or suspend production on a temporary basis? For business owners who lived through the COVID pandemic, this is by no means a foreign or hypothetical question. Business interruption insurance provides a financial safety net for companies that have to suspend their normal operations, not just for a pandemic but also for things like road closures, significant flooding, and blizzards.
5) Commercial Auto Insurance
Your LLC may need a commercial auto policy if it has any company cars, delivery trucks, or vans that are put for professional purposes. An individual auto policy usually doesn’t cover vehicles that are used for business, so a commercial auto policy can provide an essential form of protection.
6) Cyber Insurance
Virtually every company can benefit from cyber liability coverage. Cyber attacks are increasingly common, and the overwhelming majority of them target small businesses (a category that includes most LLCs). Cyber attacks can result in data breaches, lost information, and reputational damage, all of which can be exceedingly costly to the business.
That’s to say nothing of ransomware attacks, where business owners may be forced to pay enormous sums of money as their mission-critical data is held hostage. Cyber insurance can offer a level of protection against all of these costs.
7) Errors and Omissions (E&O) Insurance
Errors and omissions coverage is crucial for any company that offers clients advice or professional service of any kind. Accountants, financial planners, real estate agents, and interior decorators are just a few examples of entrepreneurs who might fall under this umbrella. Basically, if you make a mistake and a client sues you, E&O coverage will help defray your legal expenses.
8) Product Liability Insurance
This type of insurance is solely for LLCs that manufacture and sell physical products. This coverage will help protect your business should customers claim that your product caused them to get hurt in some way, or else caused damage to their personal property. This is a more narrowly focused version of general liability coverage and can provide manufacturers with an extra safeguard.
9) Commercial Umbrella Insurance
Any given commercial insurance policy will come with inherent liability limits. Once you reach those limits, the coverage won’t be of much help to you. That is unless you have commercial umbrella insurance, which can extend the liability coverage of any underlying policy. Think of this as a way to fortify or supersize other insurance products.
Choosing the Right Insurance for Your LLC
There is risk inherent to any type of business ownership. You can’t always avoid risk but you can prepare for it, and one of the most effective ways to do so is with robust insurance. Make sure you have the types of coverage necessary to keep your LLC in relatively safe territory.
Amanda E. Clark is a contributing writer to LLC University. She is a graduate of Eastern Michigan University and holds degrees in Journalism, Political Science, and English. She became a professional writer in 2008 and has led marketing and advertising initiatives for several Fortune 500 companies. She has appeared as a subject matter expert on panels about content and social media marketing. She regularly leads seminars and training sessions on trends and tactics in professional writing.