Q: Do I need liability insurance if my company is an LLC?
A: Dear Wondering:
Every company, regardless of entity structure, really should have liability insurance. This is because limited liability companies (LLCs) and liability insurance offer two distinct forms of protection.
An LLC is designed to protect your personal assets from lawsuits and debts incurred by the business. For example, if your LLC goes into serious debt, creditors can’t come after your personal assets like your life savings, unless you’ve signed a personal guarantee to secure those debts.
However, your LLC only protects your personal assets from activities of the business and does not protect your business assets from activities of the business. Let’s say your business is sued due to an error by one of your team members. The claimant can seek a judgment, which would be paid for through your company’s assets.
Liability insurance protects your company’s assets—real estate, business equipment, financials—in the event of a claim or lawsuit. If your company is sued for a covered claim, the insurance company hires you a lawyer, which is huge because even if you’ve done nothing wrong, you could have a hefty lawyer’s bill just to answer the claim. Then, if there is a judgment against you, your insurance company will pay the judgment up to your policy limits.
Even though your LLC will protect your personal assets from activities of the business, you still need liability insurance to protect your business assets. Combining the right amount of insurance coverage with the protection offered by your LLC can offer your business optimal liability protection.
Contact a Family Business Lawyer® to determine what types of liability insurance and levels of coverage your company should have in place.