Do I need business insurance if I have an LLC?

What an LLC does and does not protect

The U.S. Small Business Administration explains that an LLC protects you from personal liability in most instances, so your personal vehicle, house and savings generally are not at risk if the LLC faces bankruptcy or lawsuits. It adds that this protection has limits, and that business insurance fills those gaps.

Two gaps matter most. First, the LLC itself can be sued, and a judgment can take its bank account, equipment and receivables, which may be the whole business. Second, owners can still face personal exposure in some situations, for example for their own wrongful acts, debts they personally guaranteed, or if a court disregards the LLC because business and personal finances were mixed. Exactly when that happens depends on your state and the facts, so ask an attorney about your situation.

When insurance is legally required

Insurance requirements come from what your business does, not from its legal structure.

• Employees: most states require workers’ compensation once you have employees, with thresholds that vary from the first employee (California and New York) to four or five employees in states such as Florida and Alabama. Texas lets most private employers opt out.
• Vehicles: a vehicle registered to the business needs at least the state’s minimum auto liability coverage, and interstate for-hire trucking has federal minimums starting at $750,000.
• Licensed trades: many states and cities require contractors to carry general liability or a bond to get licensed.
• Professional licenses: some professions must carry professional liability to practice.

When insurance is contractually required

Even where the law is silent, most LLCs end up needing coverage to do business. Commercial landlords usually require general liability and often property coverage. Corporate clients and general contractors commonly require general liability, workers’ compensation and sometimes professional liability or cyber, along with a certificate of insurance naming them as additional insured. Lenders typically require property coverage on financed equipment or buildings.

Which policies most LLCs start with

Start from your actual exposures rather than a generic bundle.

Single-member and home-based LLCs

A one-person LLC with no employees is generally not required to carry workers’ compensation in states like New York, where members are not treated as employees, though members can often elect to cover themselves. Florida is different in construction, where LLC members count toward the one-employee threshold.

If you work from home, do not assume your homeowners policy covers the business. The SBA notes that a rider on a homeowners policy can cover a small amount of business equipment and some liability, but many home-based businesses outgrow that and need a business owner’s policy.