Did you know that there are more individually owned businesses than corporations in the United States? Owning a limited liability company (LLC) is one of the more common types of small businesses that Americans own.
A common misconception when owning an LLC is that the business has protections over most circumstances. The source of this misconception comes from the meaning of LLC itself.
Yet even LLCs need business liability insurance for protection. Learn more about the importance of business liability insurance for LLCs.
Why Your LLC Needs Business Liability Insurance
An LLC differs from a sole proprietorship because it’s purpose is to protect your personal finances. However, just like any other business structure, an LLC is not protected from certain risks.
If you are faced with a lawsuit, an LLC won’t guarantee to soften the blow. The most common risks and the impact they can have on an LLC are as follows.
Slip and Fall Injury
If a customer has a slip and fall injury at your place of business, they can sue you for responsibility or liability. You could then potentially have to cover the medical costs and other future expenses for that customer.
An LLC could help you because it would be the businesses finances, not your personal finances, which would be considered in this instance. During the judgment from the court, your businesses’ financial assets will be considered.
If you don’t have business liability insurance coverage, your business could lose a lot of money, or worse, go bankrupt. Don’t underestimate the cost of one single lawsuit.
Work-Related Injury
Employee injury at work is always a risk no matter the business structure you have. Almost every state requires a company to have workers’ compensation insurance, a type of liability business insurance.
When an employee is injured, you can use this insurance to cover medical bills and lost wages. Without this protection, you are at risk of paying hefty fines or even spending time in jail.
Client Data Breach
You don’t have to be in the IT industry to be worried about a data breach. If your business accepts credit card payments, you should consider Cyber Liability Insurance. If your line of work is in the IT industry, you definitely need an insurance policy in the event of a data breach. If you provide IT support for a company that becomes a victim of cybercrime, they can sue you to cover their losses.
If your business is found responsible for the losses that the company underwent, you’ll have to pay up.
Without business liability insurance, it could easily put you in a hole and lead to a bad reputation. Your business funds and property might be seized to cover the costs you owe if you are without a proper insurance policy.
Missed Deadline
Did you know if you miss an important deadline for a client, that the client can sue you? If you are found liable for their losses, you could be billed for that amount. Even if you are not found liable, you might have to cover the legal costs accumulated.
An LLC offers no protections for business assets much like other business structures. If you refuse to get the correct small business insurance, running into a problem like this could be costly. Assets could even be liquidated to pay your dues.
Employee Car Accident
If your employee drives for work, it is possible that they could end up in an accident that injures themselves and/or another driver. Even if your employee was driving their personal car, you could be held legally accountable.
The employee might not injure another driver and instead cause property damage with their vehicle. This is another situation where small business insurance is necessary so the liability doesn’t come back on you.
Much like a slip and fall injury, your business might be held accountable for damages and medical bills.
Limitations of LLC Protections
By reading the above scenarios, you might have an idea of what the LLC structure does not cover. Other common situations businesses encounter that include limited protections are:
- Mixing personal and business expenses
- Personally injuring someone
- Doing something negligent or irresponsible
- Signing a personal guarantee for a loan
- Not depositing taxes withheld from employee wages
- Committing fraud or doing something else illegal
As an LLC, or any business for that matter, you can get sued for almost anything, especially in today’s litigious society. Even if you are not at fault, you could have to come up with the money for hiring a lawyer and other expensive legal costs.
When you don’t opt for business insurance, you have to respond to the complaint on your own time. With business insurance, you can let your insurance company know about the claim and they will handle it from there.
Lawsuits often come with a bad reputation. To ensure your business doesn’t lose customers, you might need to consider hiring someone for PR guidance.
Even as a company with good practices, accidents can happen. Having the correct business insurance is the only sure way to protect your company from losing assets, customers, and pay for any unexpected costs.
LLC and Personal Assets
An LLC can protect your personal assets more than other business foundations. Yet, there are situations where your personal finances could always be vulnerable.
Your personal assets are at risk when you engage in negligent or criminal behavior. If you don’t clearly show that your personal and business finances are separate, your personal assets could also be in danger.
To keep your assets protected, follow these simple tips:
- Open a business bank account
- Apply for a business credit card
- Keep business receipts separate from personal ones
When you have these things under your belt, you can clearly show that your personal and business finances are not the same further protecting you from personal liability.
Do You Have Business Liability Insurance?
If your company does not currently have business liability insurance, don’t wait any longer to find coverage. Although an LLC comes with its own set of protections, it does not cover common workplace accidents and problems.
As always, this blog or any other information found on our site is intended to be legal advice. We are happy to discuss all the various ways you can insure your business to protect yourself from instances such as those mentioned in this post.
To stay protected and cut down the time spent on legal matters, you need an insurance policy for your business.
At Harris Insurance, we offer a wide range of business protections such as general and professional liability coverage, business auto, and workers’ compensation. Contact us today to learn how you can fit into our community.
LEGAL DISCLAIMER
Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
