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Why Should LLCs Invest in Liability Insurance?

Regardless of your scale or type of business operation-all commercial bodies, including LLCs, sole proprietorships, or MNCs, face varying degrees of business risks. Being unprotected in the face of uncertainties may spell financial disaster for your business. The right type of liability insurance ensures speedy recovery in the event of an unprecedented liability claim. Thus, LLCs, like any other business, require liability insurance.

What Are the Common Risks Faced By an LLC?

Though characterized by distinctive preset boundaries between personal and business assets that protect the latter from debts and lawsuits, LLC owners face similar if not exactly the same type of risks as faced by other businesses.
Some examples of common risks faced by LLCs include:

• Slip and fall injury
• Work-related injury
• Missed client deadline
• Client data breach
• A car accident involving employees
• Product defects in case of manufacturers or retailers
• Poor workmanship in case of a service provider

How Far Are Your Personal Assets Protected As an LLC?

Having the right type of liability insurance makes it way easier to manage your business risks. It ensures adequate protection to your business assets in the event of an unexpected liability claim. Though as an LLC, your personal assets are distinct from your business assets, there may be situations where even your personal assets may be at risk.

The two prime situations when you may put your personal assets at risk as an LLC are:
• When you wilfully indulge in criminal or negligent behavior.
• When you pierce the corporate veil by failing to distinguish between your personal and business assets.

So every time you cause a physical or financial injury to third parties, you are bound to put your LLC at risk.

What Happens When an LLC Gets Sued?

On the surface level, LLCs may seem relatively attractive and secure, considering how their personal assets appear to be beyond reproach in the event of a liability claim. However, depending on the severity of the lawsuits, the consequences of being sued may be as follows:

• Losing your license, especially when you are unable to pay off the claims as a professional
• Selling off your equipment, property, or other assets to make up for the shortage of cash
• Losing funds from your bank account to cover the cost of court cases lost
• Complete bankruptcy in the event of being unable to settle your debts.

You never know when you may get sued. Therefore, even as an LLC, regardless of whether you win or lose the court case, many resources, especially in terms of time and money, are lost in unwanted court trials.
The only solution is to stay prepared for the worst-case scenario by insuring your financial risks with appropriate liability insurance cover. This way, you not only limit your liabilities but also ensure speedy recovery in the event of an unanticipated lawsuit.

How Much Will It Cost to Invest in LLC Liability Insurance?

The amount of investment needed in LLC liability insurance will depend on the type of coverage required, which in turn will depend on factors like the type of business, the number of employees, and the type of policy (e.g., professional liability insurance or general liability insurance).

The higher the exposure to risks, the costlier your liability insurance will be.

However, considering the disasters one may encounter in the absence of a liability cover, it is always advisable to invest in an appropriate LLC liability insurance.

CF&P Insurance Brokers is happy to answer any questions you might have about your current liability coverage. For more information, call us at (925) 956-7700 today.

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