You shouldn’t make the mistake of thinking your LLC is a substitute for liability insurance. It’s not! Your LLC needs insurance! Don’t presume that setting up an LLC means that you can skip the necessity of purchasing an insurance policy. Insurance is remarkably different than the protection you get from starting up an LLC.
First, general liability insurance is designed to protect your LLC against risks that are spread across a wide spectrum by an insurer. Losses and claims are expected by an insurance company. It’s part of their business. The cost of the premiums reflects the underwriting and actuaries being able to distribute the loss over numerous others. There will be claims and the actuaries in the insurance industry can be amazingly accurate on how many losses, the size and magnitude of the claims, and the cost of litigation.
One of the added benefits of most insurance policies is the attorney provided to your LLC by the insurance company (assuming the LLC’s defense is covered by the policy). Litigation can be really costly and frankly many small businesses would be bankrupt if legal fees had to be paid from their monthly income. Having a lawyer appointed by the insurer and the defense paid at the cost of the insurance company keeps you in business. You turn in the claim and let the adjusters and attorneys sort it all out.
Suppose one of your employees ends up in one of those he said/she said accidents. There are no eyewitnesses to say what transpired and the dash cams just didn’t capture the occurrence. Assuming your driver is completely fault-free, do you want your business facing possible closure over litigation? Of course not!
If your company didn’t have auto liability insurance, then the accident still might cause you to have to close the doors of the LLC due to the resulting legal costs and expenses. With liability insurance, you get to keep on trucking along with your LLC free of the legal expenses. Should the trial go bad for you, then hopefully you have sufficient auto liability insurance to cover the damages. If you aren’t insured with enough coverage limits, now your LLC has to do its job. The LLC is the buffer or the wall between your personal wealth and the LLC’s assets if insurance doesn’t work.
If you were flying across the ocean, the LLC is like a parachute. The pilot announces there’s going to be forced landing in the water. The wings are going to come off. The nose of the airplane is going to dive down and the plane is going to come apart. He instructs you to put on your parachute. Wow, you’ve flown countless times and gotten to where you ignored those safety announcement speeches as the plane takes off. You never really intended to use one of the parachutes. Your LLC is the parachute. You don’t want to ever really find out if the chute will open. But, if circumstances dictate that you leap out into the unknown, it’s reassuring to know you have one!
Insurance is similar to all the other precautions the airline and the pilot tried before telling the passengers the plane was going down. There are two engines because if one fails, the other still allows the plane to fly. There are two pilots in case one gets ill or dies in the middle of the flight. The flight path goes north through New York to Iceland hopscotching from country to country so that if something goes awry it won’t be so far to land at an airport. All of these measures are insurance so that hopefully you’ll never put on the parachute, much less jump from the exit door in flight.
If you were forced to put on the parachute, what kind of thoughts would cross your mind? I don’t know about you, but I would hope against hope that someone over the years had maintained and inspected the parachute that I was depending upon to save my life!
You should take care of your LLC in the same way you would want your parachute maintained. The parachute has periodic inspections. You should perform check-ups on your LLC’s operations. I’m not talking about your workflows or quality control for the products and services you sell. I am referring to how the entity is operated day-to-day. If you aren’t familiar with how to operate an LLC to keep it in good legal standing, it can be learned.
We offer LLC check-ups and assist businesses with different aspects of
Trust us, we’ve seen too many businesses where years went by with no maintenance. A poorly maintained LLC is no different than a parachute that doesn’t get inspected. When it’s time to pull the cord, nothing happens. Be sure to schedule routine audits of your LLC to keep it ready and active.
Use liability insurance coverage for your LLC in case a situation arises so that the airplane can hopefully make an emergency landing without using the parachute. When things go off track (and things will happen), liability insurance for
No one wants to jump out of an airplane that’s about to go down, but it’s better to exit with a working parachute that was suited for the task than none at all!