Since the invention of the limited liability company (LLC) in the 1970s, LLCs have exploded in popularity1. Between 2005 and 2014, the number of businesses registered as LLCs grew by 66%, and that growth trend continues today2. If you’re running your own business, you may be registered as an LLC, or you may be considering launching a new business as an LLC. Even though LLCs help limit your personal liability, limited liability insurance helps provide additional protection for you and your assets.

Limited liability insurance is not an insurance policy specifically for the LLC as a business entity. Instead, it’s a type of business insurance that protects individual partners’ personal and private assets in a business.

This guide explains limited liability insurance, including what it is, when you need it, and what steps you can take to protect yourself and your business against liability.

What is limited liability insurance?

Limited liability insurance is a type of coverage that protects an individual partner’s stake in a company. While other types of insurance — like general liability insurance or professional liability insurance — protect against liabilities arising from a business’s activities, a limited liability insurance policy protects an individual partner’s stake in a business. Think of it as personal protection for a business asset.

For example, if you have a marketing agency and a client sues you for an ad campaign gone wrong, limited liability insurance would protect your stake in the company. With limited liability insurance, each partner is responsible for getting their individual policy.

Some other types of claims that LLC insurance covers include:

  • Employment practices
  • Personal assets
  • Product liability

Do I need limited liability insurance if I have an LLC?

If your business is registered as an LLC, that doesn’t necessarily mean that you’re personally protected from liability. While LLCs do provide some protection, people sometimes misunderstand them.

When someone sues your LLC, they should not be able to go after your personal assets, only your business. However, depending on your bookkeeping practices and the way you run your business, it may be difficult to figure out where your business assets end and your personal assets begin. A claimant may be able to pierce the corporate veil and go after your personal assets. Limited liability insurance can add another layer of financial protection.

Partners in the following types of businesses entities may want to consider limited liability insurance:

  • Multi-member LLCs
  • Partnerships
  • S-Corporations

How much does LLC insurance cost?

Like any other type of coverage, the cost of LLC insurance is based on the risk you represent to an insurer. The more valuable your business and the riskier your operations, and if you have any prior claims, the more you expose a carrier to potential losses.

Together, these factors are combined as part of a comprehensive underwriting process to determine your monthly or annual premiums for limited liability insurance.

Depending on the specific protections included in your policy, the annual premiums for LLC insurance can range from several hundred to several thousand dollars per year.

Limited liability insurance vs. general liability insurance

If you already have other types of small business insurance, you may be wondering whether you need limited liability insurance, too. In some circumstances, limited liability insurance may overlap with the general liability and professional liability insurance you and your partners may have already placed to protect your company.

To understand when you’re covered and when you’re not, let’s compare those two types of coverage.

  • General liability insurance covers your business from the financial consequence of accidents that result in bodily injury or property damage to a third party.
  • Professional liability insurance protects you for claims of errors and/or omissions in the professional advice you provide a client that result in their financial loss.

In what type of scenarios are these two coverages not sufficient?

Let’s say your construction business accidentally causes so much damage to your customer’s property that the total amount of damages exceeds the policy maximum of your company’s general liability insurance. In this scenario, your customer could sue your business for the excess damages. This is when limited liability insurance could help protect your interests.

Thimble: protecting your bank account

If you’re looking for the smartest way to protect yourself and your business against potential liability, you probably want to start with general liability and professional liability insurance, and we can help with that. With Thimble, you can place coverage by the job, month, or year. Just click “get a quote” or download the Thimble mobile app, answer a quick set of questions, receive your quote, and click to purchase — all within minutes.