Owners of limited liability companies enjoy protections that other business structures do not. For example, in business court cases, plaintiffs can only bring legal action against the LLC, not the owners’ assets. Nonetheless, LLCs still benefit from purchasing small business insurance.
Studies show that 90% of small businesses will experience at least one lawsuit. Others estimate that legal fees cost them $100 billion annually. Courts and judges might toss out frivolous lawsuits. However, defendants still incur attorney, administrative, and filing fees.
Small business insurance helps companies cover legal fees. Follow the steps to file claims so that the insurance benefits kick in.
Purchasing insurance is an expense that turns into an investment without an immediate payout. If companies must file claims, it indicates that something went wrong.
However, it’s a great safety net to establish.
- General liability
- Product liability
- Professional liability
- Commercial auto
- Commercial property
Each policy provides benefits under specific circumstances.
We outline seven reasons why your LLC needs small business insurance.
1. Satisfy Regulation Mandates
Some government entities mandate that certain business types purchase insurance, such as malpractice coverage for medical practices.
All companies must purchase the following:
- Worker’s compensation
Therefore, LLC business owners should explore the insurance mandates for their industry and location. The insurance requirements will differ between states. Thus, explore the requirements.
If finding the right business insurance policies becomes challenging, check out some online platforms that help business owners narrow down their options.
2. Asset Protection
Next, insurance protects assets. The LLC tax structure protects the personal assets of the owners. Insurance covers the company’s assets.
Lawsuits can damage a company’s reputation, which impacts revenue. Policies help businesses weather these storms, especially if courts find fault lies with the company.
One lawsuit with a seven-figure award can wipe out LLCs like it can wipe out solopreneurs and small businesses.
Some entrepreneurs can come back from financial devastation. However, others can only dive into entrepreneurial waters once.
Insurance helps offset legal costs and protects assets.
3. Safety Net for the Unexpected
The events of 2020-1 caught everyone off guard. Few predicted that the United States economy would reach a near standstill for several weeks.
Savvy entrepreneurs worked around the regulations and found legal ways to work within the shutdown rules. For example, restaurants started making their food available for delivery and to-go.
Policies create short-term bridges that help companies regain footing after natural disasters, economic shutdowns, and lawsuits.
Insurance acts as a safety net for the unexpected.
4. Professional Credibility
Solopreneurs can form LLCs. Entrepreneurs who opt for single-member LLCs must build professional credibility with their clients; so do small businesses.
Since insurance can cost companies an average of $100 to $400 monthly, purchasing it shows that the business can afford it. In addition, high-caliber clients are more likely to work with well-insured companies.
Landing top-tier clients is a big deal for small businesses and LLCs. However, entrepreneurs must satisfy several requirements, such as purchasing protection, if something goes wrong.
5. Protect Employees
LLCs that hire employees become responsible for them. In exchange for their services and time, the LLCs pay them a salary or hourly wage plus benefits.
Insurance covers health care benefits. Then, all employers, including solopreneurs, must purchase worker’s compensation, unemployment, and disability insurance.
After that, companies can purchase malpractice, E&O, and professional liability to protect their staff. The same policies also cover the company in case staff members make mistakes or reflect poorly on the organization in professional capacities.
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6. Covers Legal Costs
Small businesses spend between $1,000 to $5,000 on legal costs annually. The expenses cover administrative hours for human resources, legal professionals, and work their team members perform.
Legal costs take big bites of business budgets, but few ways around them exist since society has become more litigious. Purchasing insurance helps offset some, especially if the LLC must appear in court or defend themselves.
It helps offset the costs of hiring attorneys and court appearances.
7. Recruiting Tool
High-quality candidates want to work for solvent companies that offer outstanding salaries and benefits. Companies that invest in insurance can use it as a recruiting tool.
Shouting it from the rooftops is unnecessary, although some must occur in their marketing materials.
For example, landscapers, plumbers, and roofing professionals will note that they are licensed and bonded on vehicles and marketing materials.
The information helps recruit clients and employees.
LLCs need small business insurance to protect their business and assets. In addition, the investment speaks to the company’s solvency. Thus, clients can rest assured when agreeing to form partnerships. Insurance doubles as a safety net and recruiting tool.
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