It is a good idea to have both limited liability protection and liability insurance for your business. Both liability insurance and limited liability protections help to minimize the risk of financial losses as a result of a lawsuit. It has been said that one in three small businesses are sued or threatened with a lawsuit, which makes proper planning and liability protections extremely important.
What is the difference between liability insurance and limited liability protections?
Limited liability protection comes from the proper formation and compliance that comes with the creation of certain business entities and separates the owners’ personal assets from the assets of the business. The owners’ personal assets are their homes, vehicles, retirement accounts, savings accounts, etc.
Liability insurance is purchased from an insurance company to cover claims against the business and protects the assets of the business. Assets of the business can include equipment, real estate, investments, etc. Insurance comes in many forms, but the most common types of policies covering lawsuits include: general liability insurance, product liability insurance, and professional liability insurance.
Drawbacks of liability insurance
There are many drawbacks to liability insurance including:
Coverage exclusions – there are a number of ways that an insurance policy would not cover a specific claim. There is always the risk that the carrier finds a technicality which they use to base a denial of coverage such as if a policy holder does not follow the carrier’s guidelines or comply with their procedures.
Policy limits – Any claims that occur over this amount may be the responsibility of the business to pay.
If the insurance policy does not cover the entirety of the claim, creditors will typically pursue the assets of the business as the next source to cover the claim. If the business doesn’t have sufficient assets either, creditors could come after the personal assets of the business owners.
With these inherent drawbacks to liability insurance policies, insurance does not provide complete protection. Not only is it important to obtain adequate insurance coverage, but it’s also important to create backup protections in case the insurance policy is not enough. That is why it is important to have limited liability protection in the form of a business entity.
It is important to contact a Florida licensed attorney if you’d like to discuss asset protection.
You can contact Wheeler Legal PLLC by calling (321) 209-5995 or email at email@example.com to schedule a consultation and find out how this firm can help you protect your assets.
Disclaimer: The information contained above is provided for general informational purposes only, and does not constitute legal advice, nor is it intended to create an attorney-client relationship. This firm aims to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this post. Nothing provided herein should be used as a substitute for the advice of competent counsel.