Protecting your assets and reducing your liability begins with registering your business as a limited liability company (LLC). Unfortunately, the LLC structure offers only minimal protection against personal property litigation.
Your business may still need its insurance policy, even if an LLC safeguards your assets and ensures they are treated separately from your company.
Reasons why an LLC requires insurance
Because it protects your assets from corporate liabilities or legal action, a limited liability company (LLC) is a desirable alternative for business structures. However, the protection ends there.
Too often, business owners mistakenly believe that an LLC protects their business assets. And discovering the facts after the fact can be a costly lesson. Some reasons you should consider business insurance are:
It’s vital to protect company assets
Setting up an LLC generally keeps your assets from co-mingled with the company’s liabilities. As a result, even if your business is sued, you usually won’t lose your home.
However, your business assets could be at risk in several situations. If a customer slips and falls in your store or office without general liability insurance, the business may be liable for the costs of their injury.
The company may have to sell its assets to cover the cost of the individual’s injuries, including cash, accounts receivable, equipment, materials, etc.
You still have personal assets at risk
Even if your company is an LLC, there are several situations where you will be held solely liable. A lawsuit against your business could put your assets at risk if you don’t keep your business and personal assets completely separate or if you guarantee a business loan.
Your home or other things could be risky if you do something illegal, even if you are unaware that it is prohibited.
Taking care of the costs of the lawsuit even if you know you are not responsible
You could be sued for almost anything even if you’ve done nothing wrong. A lawsuit means you will need legal representation, may miss work to attend mediation or court, and could damage your reputation.
It would help if you had business insurance to safeguard your business and personal assets effectively. The company is protected by general liability insurance against third-party claims for personal injury or property damage.
In addition to the “slip and fall” claims often mentioned, you would also be protected from claims for damage to a client’s property and any claims for libel or slander.
How does professional liability insurance for LLCs work?
Companies specializing in giving their consumers “expert advice” have professional liability insurance to cover any eventuality. The term “errors and omissions” coverage is another name for it. It usually comes into the picture when the expert makes a mistake that costs another party money.
A real estate agent estimates a house to be 1,500 square feet and sells it for $150,000, an example of professional liability insurance. The house is barely 1,300 square feet when buyers remeasure after moving in.
If the real estate agent misrepresented the size of the house, he might be entitled to claim the perceived price difference. If so, professional liability insurance will give the agent financial protection during the lawsuit.
Is general liability insurance better for LLCs?
Of all commercial insurance plans, general liability insurance is the most common. It protects the business against the cost of claims arising from property damage, personal injury, or bodily injury.
General liability insurance is often required for businesses to perform simple tasks such as renting office space, bidding on a job, performing services on a customer’s property, etc.
For example, if a grocery store experiences a freezer leak, resulting in a puddle on the floor, as an illustration of general liability insurance. A customer breaks his wrist after slipping and falling into this puddle. The customer sues the grocery store for the expenses incurred due to his injuries.
In these cases, the general liability insurance will be responsible for providing financial assistance to the store to cover the payments and fees due to the lawsuit.