08 May LLC Insurance: The Importance of Insuring Your Business
No matter what type of business you own, insurance is a must-have. You may ask yourself, though, what insurance does my business need? While there are many types of business insurance, the types your business needs will depend on both the legal category of your business as well as your business’ field of work. An LLC, like any other business, must consider investing in insurance in order to protect the business, its employees and the personal assets of the owners.
What is an LLC?
A limited liability company, or LLC, is a business model increasing in popularity. There are more steps and requirements to creating an LLC as opposed to a partnership or sole proprietorship, but operating an LLC both eliminates the complications of running a corporation while also providing some financial protection to its owners.
A corporation is similar to an LLC in that both are separate business entities from the owners. However, LLC profit gains and losses go straight to the owners, who must file them on their personal tax returns.
The owners of an LLC are also protected against facing personal liability for any debts and claims made as part of the business. This is where the term “limited liability” comes in. LLC owners, in general, only stand to potentially lose any money invested in the company, not any of their personal assets. However, there are some very important exceptions.
Does an LLC Need Insurance?
So, you may now also be wondering with the mention of exceptions to this personal asset protection, are LLCs required to carry insurance? Like all business insurance requirements, LLC insurance requirements are likely to depend on the state in which your LLC is located.
Before considering which types of insurance your LLC is required to have, let’s first examine some of the cases and exceptions where LLC status will not protect an owner’s personal assets.
These circumstances include:
• Personally injuring someone
• Not correctly paying business taxes
• Engaging in fraudulent or reckless behavior
• Causing damage to the company by acting irresponsibly
• Intentionally committing a crime or negligence
• Mixing personal expenses and business accounts
• Personally guaranteeing a loan or debt
These cases are only a few of the reasons an LLC needs insurance. Some of these situations, such as causing personal injury or causing company damage, can occur unexpectedly. Insuring your LLC prevents the business from going under, from potentially losing your own personal assets, or from unexpected costs from being sued even if your company is not found liable.
What Kind of Insurance Does an LLC Need?
Generally, an LLC has the freedom to choose which types of insurance coverage it wants to invest in, depending upon the business. One might need insurance for an LLC rental property, for example, while another might need malpractice insurance if it is a medical LLC.
The most common and most important insurance for LLCs include:
• General Liability Insurance — General liability can cover the entire LLC as well as its individual members. This provides a broad type of coverage that can protect against injury claims, property damage and false advertisement claims, along with any medical or legal expenses related to an incident.
• Product Liability Insurance — Product liability is especially important if your business sells or manufactures products. This coverage will protect against any client claims of injury or property damage.
• Professional Liability Insurance — Professional liability applies to LLCs providing professional services or professional advice, such as medical, financial, and law-related businesses that may face claims of malpractice, error, negligence or omission.
• Directors and Officers Liability — Additionally known as D&O Liability, your company directors and officers will be financially protected from any accusations or actual wrongdoing.
• Property Damage Liability — Property damage insurance is especially important for LLCs that have a physical location. Coverage can be provided in the case of natural events or human-related errors.
• Lost Income or Key Personnel — These coverage types include business interruption policies or “key man” life insurance to provide LLC owners and employees stability in the event of any period of time they may have otherwise resulted in a loss of income.
• Workers’ Compensation Insurance — All businesses are required to provide workers’ compensation, no matter where they operate. However, some states require workers’ compensation for companies with more than three employees, while other states require it no matter how many employees there are.
Some states may also require disability insurance coverage as well as unemployment tax insurance. Cyber liability insurance is also becoming increasingly essential in the digital age. It’s important to check your local government policies and mandates before deciding which types of insurance you want for your LLC. Regardless, insurance for your LLC can mean the difference between a successful business and one that quickly goes under. Make sure to protect yourself and your employees.
Contact us today to request your free business insurance quote.