Why Do LLCs Need Business Insurance?

Forming an LLC creates a legal separation between your personal assets and your business. But an LLC alone does not fully protect you. Here's why insurance is still essential:

Courts can pierce the corporate veil — If you don't maintain proper separation between personal and business finances, a court can hold you personally liable
LLCs don't cover professional errors — Malpractice and negligence claims can pierce LLC protection
Personal guarantees — Many leases and loans require personal guarantees, bypassing LLC protection
Employee actions — You can be held personally liable for certain employment law violations

Insurance provides a second layer of protection that covers what your LLC structure cannot.

What Insurance Does an LLC Need?

Coverage	What It Protects	Who Needs It
General Liability	Third-party injuries, property damage, advertising claims	Every LLC
Professional Liability (E&O)	Errors, omissions, negligence in professional services	Service-based LLCs
Workers' Compensation	Employee injuries on the job	LLCs with employees
Commercial Property	Business equipment, inventory, office space	LLCs with physical assets
Cyber Liability	Data breaches, ransomware, privacy violations	LLCs handling customer data
Business Owner's Policy (BOP)	Bundles GL + property + business income	Most LLCs with a location

How Much Does LLC Insurance Cost?

Insurance costs for LLCs vary by industry and size:

LLC Type	Recommended Coverage	Typical Monthly Cost
Solo consultant / freelancer	GL + E&O	$50–$100/mo
Small retail / e-commerce	BOP (GL + property)	$75–$175/mo
Service company with employees	BOP + workers comp	$150–$350/mo
Construction / contracting	GL + WC + commercial auto	$200–$500/mo
Tech / SaaS	GL + E&O + cyber	$75–$200/mo

LLC vs. Insurance: What Protects What?

Protection	LLC	Insurance
Customer sues for injury	Protects personal assets (if veil holds)	Pays legal defense + settlement
Professional mistake	Limited protection	E&O covers defense + damages
Employee injury on job	No protection	Workers comp covers medical + wages
Data breach	Limited protection	Cyber policy covers response + liability
Property damage you cause	Protects personal assets	GL pays the claim from business policy

Bottom line: Your LLC protects your personal assets. Insurance protects your business assets and pays the actual claims. You need both.