What Insurance does my LLC need?
A Limited Liability Company, or LLC, is a popular form of business entity for several reasons. One of the main advantages of forming an LLC is to separate your personal liability from your business operations. However, starting an LLC does not protect you from all threats. For example, if a fire damages your business office and equipment, an LLC does not act as insurance.
You, as a business owner, can protect your personal assets in case your business is hit with a liability insurance claim, or possibly more costly, a lawsuit. This article will discuss several of the most important types of insurance that you may want to consider for your LLC based on your line of business. An LLC is usually free to choose which insurances to purchase in order to cover the different risks to the business.
What is Liability Insurance?
There are several forms of commercial liability insurance, depending on the type of business you operate and the risks that are involved. Here are 3 main types of liability insurance options for your LLC:
General Liability Insurance (also known as Commercial Insurance)
This insurance protects your business assets if someone gets injured on your business property. Everyone makes mistakes and when such a mistake impacts other people, you could face a lawsuit. General Liability Insurance can prevent the legal claim from potentially destroying your LLC. This type of insurance will help pay for medical expenses for the injured person, legal defense costs, and any judgements against you. General Liability Insurance is not mandatory, but it is a good idea to have it especially if you have valuable assets. The key point here is choosing the right coverage limit.
Product Liability Insurance
This type of insurance can protect you if you are held liable when your product you manufacture or sell, causes injury or property damage.
Professional Liability Insurance (also known as “errors and omissions” insurance)
This type of insurance is best for LLCs that provide professional services, such as in the medical field. A form of Professional Liability Insurance for doctors is known as Malpractice Insurance. Other examples of companies that need Professional Liability Insurance, or errors and omissions insurance, include:
- Accountants, Lawyers, and Architectural firms
- Property maintenance and construction
- Auto repair
- Tech support and repair, software and IT
- Engineering companies
- Financial advisors
If you operate a type of LLC that can be sued for error, omission or malpractice, Professional Liability Insurance is a necessity.
What is Property Insurance?
If your LLC owns property, either in real estate or physical inventory, you may need insurance to protect you against fire, vandalism, and certain natural disasters. Property, Fire, and Casualty Insurances address these types of hazards and there are many insurers to choose from. A good policy will cover a variety of disasters and comes in 3 different forms (Basic, Broad, and Special form), so be sure and choose your policy carefully and note anything it may exclude.
What is Worker’s Compensation Insurance?
This type of insurance is a state-regulated insurance system that provides coverage to your employee who may suffer from a job-related injury, illness, or disability. Its purpose is to provide the needed assistance to your employee suffering an injury but also to you as the employer, since you are covered from legal complaints as a result of that injury. If your employee receives worker’s compensation, he or she cannot file a case against you in reference to the injury. States differ in their regulations though, and currently Texas business employers can choose whether or not to carry Worker’s Compensation Insurance.
Texas employers who do not carry Workers’ Compensation Insurance coverage are required to report their non-coverage status and work-related injuries and occupational diseases to the Division of Workers’ Compensation. Employers who do carry Workers’ Compensation Insurance coverage are required to report all known occupational disease and any work-related injuries that result in more than one day of lost time. Employers that fail to meet these requirements commit an administrative violation and may be subject to administrative penalties.
What are the Costs for Purchasing Insurance for my LLC?
Costs for the specific insurance you may need to protect your LLC vary widely based on the type of business you operate, your location, as well as the specific type of coverage you need. Costs depend on the number of employees you have, and the general risk factors in your type of business. There are many insurers who specialize in commercial coverage who can work with you to determine what insurances will best meet your business needs.