Registering your business as a limited liability company (LLC) is an important first step in protecting your personal assets and reducing your liability. Unfortunately, the LLC business structure typically only protects personal property from lawsuits, and even that protection is limited.
While an LLC will protect your personal assets and ensure that they are treated separately from your business, your business may still need its own insurance policy. For example, there are certain situations in which you could still be held personally responsible for issues concerning your small business, such as excessive debt. Small business insurance can fill in those coverage gaps and help you sleep well at night.
What are the limits of limited liability?
Unfortunately, the protections offered by an LLC structure don’t cover every situation that you or your business may encounter. Here are a few examples:
- You’ve mixed personal expenses with business expenses
- You personally injured someone
- You’ve done something irresponsible or negligent
- You’ve signed a personal guarantee for a loan
- You didn’t deposit taxes withheld from employee wages
- You’ve done something illegal, such as committed fraud
- Someone slipped and fell in your office or shop
In short, you can get sued for nearly anything, even if you’re not at fault (remember the “too hot” coffee lawsuit?). And litigation means you’ll need a lawyer and, if you or your company’s reputation is at risk, public relations guidance To be safe, business insurance will help protect all of your assets, even unexpected costs associated with natural disasters.
What insurance is required?
If your business is just one or two people working from home, you may not need workers’ compensation insurance, but you’ll probably need more property and liability insurance than what’s provided in your basic homeowners’ policy. Of course, most types of insurance are optional, and some are only appropriate for certain kinds of businesses.
You should also consider that the U.S. government requires every business with employees to obtain workers’ compensation, unemployment, and disability insurance. And, some states require additional insurance, but laws vary by state. Your state’s small business website will list the specific requirements for your area.
After you buy the coverage that’s required, you can shop for insurance to cover any other business risk.