Liability Insurance for LLC: Everything You Need to Know
Having LLC insurance is important when running a business. One of the main reasons people start a limited liability company is so they can separate their business operations from their personal liability. Business owners will want their own assets to stay protected in case a liability insurance claim is taken out against the business. Getting the right LLC insurance is crucial to making sure your business stays protected against any coverage gaps.
How to Find LLC Insurance
When searching for insurance for the company, it's important to make sure the policy meets all your needs. Local member agents can be consulted about this, as they know what the state regulations are and all requirements for LLC insurance. They'll work with companies to find a policy that matches their needs.
Many companies choose to have a limited liability company be their business structure. There are tax advantages that an LLC offers, similar to a partnership, such as being exempt from corporate double taxation. Many times, the member's personal assets are off-limits to debt collectors when he or she is operating under an LLC. An owner cannot be personally held responsible for the obligations and debts of the business.
It's necessary in some states for health care providers to purchase malpractice insurance. This is sometimes known as professional liability insurance. However, LLCs are usually free to decide whether they want to cover varying risks of the business by getting insurance.
Limited Liability Exceptions
Employees may be liable for things they do while working at the LLC.
As an example, an LLC will not protect an employee in the following circumstances:
- If the employee injures someone.
- If they personally guarantee a business debt or loan.
- If they manage the business' taxes incorrectly.
- If they commit a crime intentionally or engage in reckless or fraudulent behavior that in turn damages the company.
- If they mix their personal and business expenses and accounts.
Does a Limited Liability Company Act as an LLC Insurance?
Forming an LLC does not mean you're protected from all threats. There is an important concept to understand called "piercing the corporate veil." An LLC is like a barrier between the member's personal finances and business operations. Think of it like this: a fire can start and cause damage to the business' property. The building itself will provide protection, but does not take the place of insurance.
If a limited liability company has a lot of debt, a legal team will hold the business responsible for the debts. However, talking to the company's attorney and independent agent about any personal risks they might be exposed to is smart. Doing so makes sure both the business and the owners are protected.
LLC Insurance Requirements Vary By State
The state government sets LLC insurance requirements, so it's important to comply with their insurance laws before starting an LLC. Workers compensation is required in all states, no matter if a business is a limited liability company or not. However, the requirements differ by state. Some states make it mandatory to have workers compensation regardless if a company hires staff members, while others require it based on a certain amount of employees.
Disability insurance is another type of insurance to which some states require businesses to contribute. Workers compensation will cover illnesses and injuries that are work-related, while disability insurance covers incidents and illnesses that are not related to work but prevent an employee from coming back to work.
Some states require unemployment insurance tax while others do not. This helps workers who lose their jobs by covering the costs of unemployment insurance. An LLC may also need to register their company with their state's workforce agency.
Property Insurance Coverage for LLCs
One of the most important forms of business insurance is property insurance. This is something that all companies should purchase. This type of insurance protects a business property against loss or damage due to a cause that's covered, like a fire. A commercial property policy should cover a variety of things, such as personal property that's kept at the business site and the building's structure. Make sure to look at the policy thoroughly to check that there aren't any exclusions in it.
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