Do You Need Insurance if You Have an LLC?


I’ve heard some startups question whether they need business insurance because they have an LLC. The thinking is that an LLC or a Corporation is going to protect and separate the assets of the business from the assets of the owners of that business, so what’s the sense of paying for business insurance if the owner’s personal assets are shielded?

In this article, I’m going to answer the question – does an LLC mitigate the need for business insurance, specifically general liability insurance?

The answer to that is no, and here’s why.

If you’re the owner of a business that is formed as an LLC or a corporation and someone suffers an injury or property damage at your business, or by your products or services, that injured party is going to seek remediation for their damages or injuries.

Let’s take a simple example – you own a retail store and someone slips and falls and injures themselves. They incur costs and bills from their doctor or hospital, they may have suffered lost wages, etc. For example sake lets say those damages or costs roll up to $50,000. Their injury wasn’t their fault, it was due to your negligence so they are going to seek reimbursement from your LLC for that $50,000.

If you turn around and say to that injured person – sorry I don’t have business insurance there’s nothing I can do, that’s not going to sit well with that person and they’re likely going to hire an attorney who will sue you and now add in pain and suffer to the claim for damages amounting to say $1M.

As the owner of the LLC you have a responsibility to answer that lawsuit. That means hiring an attorney, paying a retainer, and possibly litigating that claim which means a lot of dollars flowing out of pocket.

What if you don’t have the money in the business to pay these costs or just ignore the lawsuit thinking your LLC will protect you?

Not a good strategy – look, I’m not an attorney, but an injured party and their attorney isn’t going to go away quietly so they will look to pierce the corporate veil to attack your personal assets.

Now you may be saying, wait a minute I thought the LLC protected me and my assets from potential liabilities of the business? This is true, until the LLC can’t pay for claims and claimants go after the owner or owners of an LLC.

That’s why business insurance is your first line of defense to protecting your LLC, or corporation and the owners of your business. Business insurance is going to respond to potential claims in many ways. In the case of the slip and fall most policies will pay medical expenses up to $10,000 without being sued.

If you are sued, general liability insurance will pay defense costs – meaning hiring an attorney and the related costs to defend you in court and if you are forced to pay a settlement amount, liability insurance will cover that as well.

Here’s the bottom line. Having an LLC or another corporate entity is a good idea to protecting your business from claims and separating you from your entity, but it is not a fail safe. If damages or claims arise the LLC is not bullet proof so having the right insurance matters.

What is the right insurance if you have an LLC?

It’s going to depend on the type of business you own and operate but it will likely include general liability or a business owners policy, workers compensation, auto liability coverage, umbrella or excess liability protection, E&O or errors and omissions coverage if you offer professional services or advice, cyber insurance, and potentially other coverages.

A lot of business owners like to try and do the shopping of insurance on their own online, which is fine, but a word of caution – do you want to put your company at risk by not getting the right protection because you decided to do a DIY job here? Or would you rather have professional guide you to make the right purchases?

My role as a skilled broker is to help clients find the right coverages they need, at the right limits with the right endorsements and customizations. Then give clients a choice from the broad variety of insurers we represent. It doesn’t cost more to work with a broker like me, so doing it on your own doesn’t make a lot of sense in my mind.

My priority is protecting you and your business and getting it right. Want to learn more? Let’s connect. Drop me an email or give me a call.


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