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Everything You Need To Know About LLC Insurance Policies

New businesses need to be aware of how to protect their assets. Of course, if they have made a conscious decision to form a limited liability company (LLC), they are aware that their personal assets will be protected by the nature of the structure, but what about the business’s assets? Are they aware of how they can protect them too?

Businesses are exposed to a number of liabilities, and should any of these liabilities realize as a lawsuit, a business owner would want their business assets (i.e. business property, bank accounts, stock, etc.) to be adequately protected from this risk. This is where LLC insurance comes in.

This article will discuss the difference between limited liability protection and insurance (the two possible interpretations of ‘LLC insurance’), before moving on to the types of liability insurance often taken out by LLCs. Given the lack of insurance in small firms, the necessity of this article is clear.

Liability Protection vs Liability Insurance

Limited liability protection refers to the inherent shield provided by the business structure of an LLC. This creates a demarcation between business and personal assets that precludes the latter from being pursued in order to repay the business’s debts.

In other words, this protection is the characteristic of LLCs that ensures the personal assets of the owner (i.e. houses, cars, money) are safe from repossession for business debts.

In order to maintain this protection, all the business owner must do is preserve this distinction between business and personal finances by keeping them completely separate. If the two asset types were to become mixed for whatever reason, the company’s limited liability protection might be compromised.

LLC Insurance Policies

Contrastingly, the insurance policies an LLC takes out provide protection for the business’s assets from specific risks they might be exposed to. These two components work together to ensure that both the business and its owner have financial protection in the event of some loss.

Below are some of the common insurance policies for LLCs to take out.

General Liability

General liability is one of the most common insurance packages taken out by all companies universally, not just LLCs. This is because of just how comprehensive this policy is in providing effective protection against such a wide range of risks businesses are likely to face.

Furthermore, it provides protection from the financial fallout of lawsuits stemming from some property damage or bodily/personal injury. Another reason it is so common is that a great number of basic business functions necessitate the ownership of general liability insurance for a company to be able to participate in them.

Image Credit: TRUiC

Professional Liability

Another very common insurance policy for LLCs to invest in is professional liability. This pertains specifically to those that provide specialist, professional advice to their customers. It provides protection when there is an error or omission in the advice that induces a loss to the customer.

An example of this could be if a real estate agent negligently mismeasured the area of a house to be 2,000 square feet when in fact it is only 1,700. If the house was sold at $200,000 on the basis of this square footage, the buyers might potentially make a claim against the estate agents on the basis that they paid more than necessary due to misrepresentation regarding the house’s size.

If the estate agents had professional liability insurance, which they most likely would, they would be insulated from at least the main brunt of the financial fallout from this claim.

Business Owner’s

The final insurance policy recommended for all LLCs to take out is Business Owner’s insurance. This is a package of many policies that are bundled into a single one in order to provide coverage for a company against the most likely risks they will face.

It is common for these Business Owner’s Policies (BOPs) to contain property, general liability, and business interruption insurance. That being said, the different policies included in a BOP vary depending on the insurance company and the agent in charge of the policy.

Final Statement

We hope this comprehensive overview of everything you need to know about LLC insurance is helpful to you. For a more in-depth look into the topic please refer to TRUiC’s resource at the aforementioned link.

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