When starting a small business, you should make your business an LLC or Limited Liability Corporation. Creating it as an LLC or Limited Liability Corporation will protect you and your personal assets from being affected should your company have legal issues, including lawsuits or collections.
Outside of making your business a Limited Liability Corporation, you also need to obtain business insurance. Many business owners believe they are completely protected by becoming an LLC. Still, this assumption is incorrect and could be costly or even devastating to a company that does not carry business insurance. Here are three major reasons your small business needs business insurance.
Protecting Your Business Assets
While forming your company into a Limited Liability Corporation protects your personal assets, business insurance is necessary to cover your business assets. Both of these, in combination, will give you complete protection against lawsuits and disasters.
Small businesses often have financial struggles larger businesses don’t experience, and one liability incident could destroy your business. This possible destruction is the main reason every small business needs business insurance without question.
Business insurance will also protect your business assets should one of your employees makes a mistake that puts your business at risk for suit or other liability.
Protecting Your Personal Assets
Even if your business is a Limited Liability Corporations, there are still some circumstances in which you could be held personally liable. These circumstances include if you guaranteed loans with your personal assets or left any of your personal assets attached to the business.
Therefore even under an LLC, your personal assets could be lost if connected to your business, and you don’t have business insurance. Business insurance also covers court costs even if you are not found to be liable.
We live in a litigious society. Even if you or your business have not done anything wrong, if a suit is brought against your business and you are not covered by business insurance, your company could go bankrupt.
Liability Goes Beyond What We Can Imagine
There are so many hidden issues we can involve ourselves in as a business that could open us up to potential financial devastation without business insurance. Professional liability insurance covers accidents that happen on your property, it also covers libel issues, and it covers third party mistakes made by your employees or subcontractors.
There are many scenarios where you and your business could be liable beyond what you can imagine that business insurance would cover. Those small businesses that go without business insurance may believe they are low risk due to the nature of their business. Still, many unforeseen issues can cost you greatly if you are not covered by business insurance.
Examples of Unforeseen Scenarios
An employee is delivering something and accidentally breaks a $125,000 vase. Without business insurance, your company would have to pay the client $125,000 or risk court where the client could win more than just the vase’s cost. If you carry business insurance, it would cover the vase’s cost and protect you and your assets.
The classic slip and fall can potentially wipe a business out depending on the physical damage the falling victim incurs. You would be liable for not only the medical cost but potentially for loss of income and future medical costs if the issue is permanent or long-term.
Conclusion
Small businesses have many expenses that are a challenge to pay at times, and often small business owners will cut out business insurance to save the premiums. These reasons laid out above explain why you need business insurance and should make paying the monthly premiums a priority.
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