LLC Business v. Insurance- Does the LLC take the place of Insurance

A limited liability company is not the substitute for business insurance.

A limited liability company provides personal limited liability protection which prevents an owner of the business from being liable for “business” obligations merely because he/she is the owner. This gives you protection that a sole proprietor does not and is a tremendous benefit because all businesses will have to subject themselves to risk as a necessary component of running a business and small business lawsuits are file all the time.

However, a business LLC is never a substitute for business insurance.

First, business insurance exists to protect the LLC business itself (and assets held by the business) from certain liabilities in case the business is sued. The LLC protection is there primarily to protect the personal assets of the owners from business liability but not the business assets themselves. Insurance can do this.

Second, the LLC protection does not apply to every situation where an owner could be held liable for a business related action. For example, if you are a personally negligent (ex. you were in a company car and were at fault in causing an accident) when running your business, someone can still sue you personally for being personally negligent.

You cannot avoid personal actions liability merely because you own an LLC. Insurance can help to covers some of these situations (accident insurance, professional liability insurance, auto insurance, employment acts, etc.).

The LLC Expert offers a popular ebook- The Six Step LLC Formula for Limited Liability Protection which provides a more detailed explanation of business LLC liability limitations so you can better understand them as an LLC operator and plan for them. There is a section explaining insurance.

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