A limited liability company (LLC) is a special type of business structure that provides you with personal asset protection and tax flexibility as a business owner. No matter what type of LLC you open, you should protect your company with insurance from your first day in business. Though the specific type of commercial insurance you’ll need may vary depending on the nature of your business, all LLCs can benefit from the following types of coverage.
General Liability Insurance
General liability insurance is basic commercial insurance coverage that helps you pay for the cost of legal defense or awarded judgements in the event that a client sues you after being injured or sustaining damages on your property. For example, imagine a client trips on the front steps of your business and sprains an ankle. That client could potentially sue you for the cost of medical bills, alleging you didn’t keep your property safe for visitors and customers to enter without injuring themselves.
In this instance, your general liability insurance coverage would help you pay for the costs that you’d incur defending yourself from these charges. If a court of law decides you are liable for the client’s injuries, your general liability insurance would also help you pay for this client’s medical bills. General liability insurance also helps cover legal expenses related to property damage liability as well as copyright infringement.
Commercial Property Insurance
Commercial property insurance is protection that helps you pay for repairs and replacements made to the physical space you conduct business from. If you work from a rented space, your landlord may require you to maintain at least a certain level of commercial property insurance as a term of your lease.
If you own a home, you’re likely already familiar with many of the coverages that come with commercial property insurance. When you sign onto a commercial insurance policy, your insurance contract will include a list of named perils that you’re protected against damage from.
Some examples of common covered perils include fire, theft, damage from electricity and vandalism. Damage resulting from earthquakes and flooding is almost always excluded from coverage, but you can typically add these protections with an additional plan issued through the same insurance company that offers your commercial property insurance.
Business Owner’s Policy (BOP)
Most business owners who operate from a commercial location know they need both commercial property insurance and general liability insurance. A business owner’s policy (BOP) is an all-inclusive insurance policy that combines both of these coverages under a single contract. Buying a BOP instead of two individual insurance policies helps you save money on both coverages and pay a single insurance premium.
Workers’ Compensation Insurance
Workers’ compensation insurance is coverage that provides your employees with cash benefits in the event they’re injured during the course of their work. In many instances, it is against state law to operate without workers’ compensation insurance when you do not operate your business as a sole proprietorship or partnership.
The amount of workers’ compensation insurance you’ll need will vary depending on the state where you operate your business. You may need to purchase a workers’ compensation insurance policy as soon as you hire your first employee, or you may need to add a few staff members before you’re required to purchase this coverage.
For example, if your business is in Alabama, you are not legally required to purchase workers’ compensation insurance until you have five employees. However, the same business operating in New York will need to purchase workers’ compensation insurance as soon as it hires its first employee. Speaking with a local insurance agent can help you understand the specifics of your state’s laws regarding workers’ compensation insurance.
Do You Need Commercial Insurance if You Work at Home?
While you may not think you need commercial insurance if you work from the comfort of your home, you should consider getting coverage. If you own your home, you won’t have a mortgage company hanging over your shoulder insisting that you maintain at least a certain level of commercial business insurance in the same way that you must have homeowner’s insurance. However, commercial insurance can still be a valuable asset if you run a home-based business. The point of commercial insurance if you work from home is to separate your home and your business entity.
Your homeowners insurance policy will not cover anything related to your professional life, even if you do all of your work at home. This means that if you see clients at your home, you might run the risk of being held personally financially liable in the event that a client is injured or damages their property at your home. Commercial property insurance provides an additional layer of protection to your single-family home that helps you tackle common lawsuits that businesses face on commercial properties.
No matter if you see patients at home, or you simply work at a desk in your house with a computer, you should consider investing in a business insurance policy. This coverage can provide you with protection so you don’t have to worry about anything happening to your home if an issue with work occurs onsite.
Is D&O Insurance Necessary for Small LLCs?
Directors and officers insurance, otherwise known as D&O insurance, protects those higher up in a company in the case of losses resulting from a lawsuit. This type of insurance offers protection to directors and officers for their personal assets if there are claims made against the company or them specifically. While this isn’t required insurance for an LLC, it may still be necessary and something you’ll want to consider.
If your small LLC doesn’t have a board of directors or officers, it may not be necessary for you to get D&O insurance. However, if your company has a board or officers, this insurance could provide crucial protection.
In addition, if you’re looking to recruit members for a board, then D&O insurance may make the position more appealing for prospective members, as this type of coverage helps ensure that your professionals won’t risk their personal assets working at your business.
How Does a Business Succession Plan Work?
A business succession plan works by passing leadership roles to another qualified candidate in the event that the person in that role retires, leaves the company or dies. Succession planning helps to identify or train replacements for a role in the case it is necessary for them to take over the role. This could mean one individual with certain skills, or it could be a group of employees who will all be trained to be able to take on the role.
A succession plans is especially useful for a small business or family operation, as it is essentially training the next generation for when they eventually take over the business. The process of succession planning requires recruitment and training. Those overseeing the plan must identify the skills and knowledge needed to perform the role in order to find the person or people who may fill it in the future.
There can be several types of business succession plans. For example, a business could have an emergency succession plan that would be used if role needs to be filled unexpectedly. Long-term succession plans help to plan for the future and the expected leadership changes that will eventually occur.
Compare Commercial Insurance
Have you been operating your LLC without any type of commercial business insurance? If so, you could be putting both yourself and your family at risk in the event that your business is served a lawsuit. Maintaining a comprehensive commercial insurance policy can help you protect your livelihood and family as a business owner.
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Frequently Asked Questions
What is the most important type of insurance for a business?
The types of insurance you need for your business could vary depending on the type of business you have and where you operate. However, the most important type of insurance for most businesses is general liability insurance. This protects against injury or property damage to someone else, personal injury and slander.
What are the most common types of commercial insurance?
The most common types of commercial insurance are liability, property and workers’ compensation insurance. Liability insurance offers coverage for damages to outside parties, property insurance offers coverage for your business’ss property and workers’ compensation offers coverage for your employee’s injuries who are injured on the job.