The LLC is an excellent choice for a business entity because of its ease of use and limited liability asset protection. While the asset protection which an LLC offers is excellent it will not protect a business from lawsuits and other operational liabilities which may arise. This is where business insurance shines in its ability to protect the assets of a business owner. The US Small Business Administration states that business insurance can protect you from unexpected costs such as, “Accidents, natural disasters, and lawsuits”. These unexpected costs have the potential to, “run you out of business if you’re not protected with the right insurance”. This article will cover the top five reasons why an LLC needs insurance.
1. Being Prepared for the Unexpected
It is impossible to know when disaster may strike a business which is why it is so important to be prepared. There are factors that are outside of the control of any business owner and the recent coronavirus pandemic is an example of this. Thankfully there are ways to protect a business from the unexpected and one of these ways is through business insurance. Business insurance can protect any business by providing cover for weather or other incidents which are outside of the business’s control. This is especially important for small businesses that may not have the capital to cover any financial losses.
2. Protection Against Income Loss
There are insurance policies available which protect a business from more than just the expense of the liability. Policies exist which can also protect a business from the loss of income which arises as the result of unexpected events. For example, if a business has its premises damaged by a storm, a standard insurance policy would likely cover this damage. However, only a policy which includes protection against income loss would compensate a business for the income which they lose during this period. This is vital for businesses of all sizes, and is especially important for the protection of employees.
3. Legal Bills are High
Operating a business is a risky endeavor, and one of these risks is the potential to be sued. Even when a business is not at fault in a legal dispute, the costs required to prove this may be exorbitant. This is especially so when the cause of a liability is ambiguous or arguable to an extent. An example of this is when a customer suffers an injury on a business’s grounds. The customer may sue the business even if the business bears no blame with regards to the injury. This potential for liability can affect any business at any time, and having business insurance can alleviate the losses involved.
4. Accidental Fault
A business may make a mistake and cause liability to ensue. A business owner or employee is ultimately only human and is capable of creating faults on an accidental basis. This would result in the company being liable for the fault which the representative of the company has caused. A business of any size could easily be susceptible to a situation such as this which is why business insurance is important. Business insurance will likely protect a business by mitigating the liability which the accidental fault has caused. This can be a vital lifeline when an individual has made a costly mistake.
5. Payment Issues
A business may encounter issues when it comes to payment of two important aspects of business. The first aspect is taxes as an LLC does not protect its owner from incorrectly filling out its tax returns. This can result in incorrect tax payments which could cause trouble for a business with the IRS. The second aspect is loan or debt repayments as an LLC will not protect the assets of the business from the debt which it accrues. This is another situation in which business insurance can be beneficial as it could provide cover to a business to make it through a tough period caused by incorrect payments.
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LLCs require insurance because operating a business is an endeavor which is fraught with risk. These risks include the unexpected and a business can only derive so much asset protection from an LLC. This is why business insurance is important because it can protect companies from the everyday risks of business operation. Several risks and eventualities have been provided as examples and there are more possibilities in the world of business further supporting the importance of business insurance.