Business Insurance in Houston

Forming a limited liability company can protect your personal assets, but that doesn’t mean your business assets are untouchable. Learn why your LLC faces risks like any other business structure – and how LLC insurance can protect you.

A limited liability company (LLC) is an attractive business structure option because it shields your personal assets from business debts or lawsuits. But that’s where the protection ends.

Too often business owners mistakenly think an LLC protects their business assets too. And learning the truth too late can be a costly lesson.

Let’s look at the biggest risks LLC owners face and how the right type of LLC insurance coverage can protect your business.

Why an LLC doesn’t limit your business risks

Unlike a sole proprietorship, an LLC will protect your personal finances. But an LLC is just like any other business structure when it comes to risk.

An LLC won’t soften the financial blow a business lawsuit could have on your company. Here are some examples of common risks and their potential impact on an LLC:

A slip-and-fall injury

A customer might slip and fall at your business and file a lawsuit. If you’re held responsible, you’ll have to pay for their medical costs and other expenses.

With an LLC, you won’t be required to pay the damages with your personal finances. But all your business’s financial assets can be considered in a judgment.

A work-related injury

One of your employees could be injured at work. No matter your business structure, nearly every state requires businesses with employees to carry workers’ compensation insurance.

An LLC is no exception. If required by law, you’ll need to carry coverage to help cover lost wages and medical bills. Without it, you risk fines and even jail time.

A missed deadline

A missed deadline on a project may cost your client money. If they sue and you’re found liable, you’ll have to foot the bill for their losses. Either way, you’ll have to cover the legal costs.

An LLC offers no additional protection over other business structures when it comes to your business assets.

A client data breach

Let’s say you provide IT support for a company that then suffers a data breach and sues to recover its losses. Your business could be held responsible for the costs of that company’s recovery.

An LLC doesn’t prevent your business funds or property from being seized to pay what you owe.

An employee car accident

During a work errand, an employee could get into a car accident that injures another driver. Whether they were driving a company or personal car, your business could be held legally accountable.

Even with an LLC, your business could be on the hook for any damages and medical bills.

Are your personal assets ever vulnerable with an LLC?

Your personal assets are at risk with an LLC only if:

• You’re engaging in criminal or negligent behavior.
• You fail to keep your personal and business assets separated.

When you don’t clearly distinguish between personal and business finances, you could “pierce the corporate veil” and open yourself up to personal liability. Steps to help keep your personal assets protected may include:

• Open a business bank account to manage any business finances.
• Apply for a business credit card to separate expenses.
• Keep any business receipts separate from your personal ones.

The bottom line: Your LLC is at financial risk any time your actions cause a physical or financial injury. The only difference between your LLC and a sole proprietorship in the examples above is that your personal assets are probably safe.

If you’re like many small business owners, you may have used your personal savings to get your business off the ground. And you probably pay yourself very little, at least to start with.

That means the lion’s share of your money is tied up in your business – and therefore vulnerable to risk.

What if your business is successfully sued?

If you lose a court battle, funds may be taken from your business bank account to cover the judgment. You could be forced to sell your business equipment or property to settle the debt if you’re short on cash.

Certain professionals also risk losing their professional licenses. For example, if someone successfully sues you and you don’t pay, a state licensing board can suspend your license.

In a worst-case scenario, your LLC could be forced to declare bankruptcy if you can’t settle the debt.

Business lawsuits are often unexpected, and you can’t always prepare for them. The best way to limit your LLC’s financial risk is to carry the right business insurance.

Even when you win a lawsuit, it will still cost you time and money.

What kind of insurance does your LLC need to protect your business assets?

The insurance coverage you should buy for your LLC depends a lot on the type of business you’re in. LLCs typically select a combination of these common policies to protect their business:

General liability insurance covers typical risks your business might face such as:

• Customer injuries
• Customer property damage
• Advertising injuries like libel or copyright infringement

Professional liability coverage (also called errors and omissions insurance or E&O) covers legal fees, settlements, and judgments if a client sues your business for unsatisfactory work. E&O insurance is important for any business that sells its expertise or provides professional services, like engineers or accountants.

Workers’ compensation insurance is likely required by law if your LLC has employees. It covers medical costs and disability benefits if an employee is hurt on the job.

Commercial property insurance is vital if you own or rent an office or workspace – and it's probably required by your landlord or mortgage lender. This policy helps pay to repair or replace your real property, equipment, or inventory if it’s damaged, lost, or stolen.

General liability and commercial property insurance can often be bundled into a business owners policy (BOP) to save on premiums.

Cyber liability insurance is especially important if you conduct business online or handle sensitive data. A data breach or cyberattack can be devastating to any small business. If your LLC is hacked, this policy will help pay for recovery costs including:

• Fines and penalties
• Business interruption expenses
• Customer notification
• Credit monitoring

Commercial auto insurance and hired and non-owned auto insurance (HNOA) protect your business from the costs of accidents while driving for business. Commercial auto covers accidents in a company-owned vehicle, while HNOA covers accidents in a leased, rental, or employee vehicle.

Your LLC might require more specialized types of coverage. These include:

Product liability insurance, which covers lawsuits claiming a product you created or sold caused bodily injury or property damage. This type of coverage is important for manufacturers and retailers.

Directors and officers (D&O) insurance, which can be valuable to businesses with a board of directors. It protects board members or officers from lawsuits claiming their decisions resulted in a financial loss.

Surety bonds are sometimes required by clients, or to get a license for your profession. A bond provides a guarantee that your company will fulfill the terms of a contract or adhere to certain standards and regulations.

How much does LLC insurance cost?

The price of small business insurance is based on a few factors, such as:

• Type of business
• Number of employees
• Type of policy

The more risk your company faces, the more expensive your LLC business insurance. Even if your business is running on a tight budget, LLC insurance is one of the best investments you can make.

Fuente: insureon

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Business Insurance in Houston

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