Thread: Do I need insurance on an LLC

Great thread, need this insight as well, thank you for asking

Yeah need an answer to this one. Especially since it could be medical related... My sister said that the insurance is OUTRAGEOUS for medical related products because people just love that free money.

The decision to insure relies solely on how much risk you wish to mitigate within your business.


Although an LLC does indeed have limited liability, this limitation does not apply to the following :


1. You have acted in a negligent or irresponsible manner.
2. You have done something illegal with your business whether you are aware of it or not
3. You have signed a personal guarantee for a loan
4. You have mixed your personal expenses with your business expenses. In other words, you are not treating your business as a separate entity


In any of the cases listed above, the courts will resolve to "pierce the corporate veil", which means that the courts will decide you are just hiding behind a corporation in order to get away with business frauds and perhaps criminal activities.

This covers your question on "If your LLC gets sued and you don't have the capital to back it up in your LLC account they could come after you personally. You need insurance!"

In this case your assets will be seized and you will have to pay a lot of money out of your pocket to pay your legal fees.

If you don't plan on committing any of the acts mention above, let's go over your second question before making any decisions.



"If your company gets sued declare bankruptcy and start another LLC with a different name."

In this case the reason you may do something like this, is if someone is out to get you (maybe your a small guy and a big competitor is trying to flush you out) you may wish to declare bankruptcy(which is just a legal term that I won't go into too much detail over- if your interested I will but it does get complicated). In doing so, the other party has nothing left to grab from you and nobody is stopping you from starting another LLC because LLCs are their own legal entities.


Note: This will only work if you don't have many assets under the corporations name.


Important: One thing to note is that insurance can cover product liability (in your case it's medical). If someone uses your product and get's injured- if you have product liability insurance they will pay for the damages. Otherwise your hand will be forced into a lawsuit and you may not be able to pay the fee's or ditch the corporation either. Essentially you may put your business in danger of going under.


When choosing if you need insurance or not, I think it's important to analyze the industry (see how safe it is etc.) and how much control you want to add (i.e. buying no insurance vs. some insurace vs. extended --> the more you buy the more you protect your asset(assuming it is making a positive cash flow)

note: If you are from the states, you are MUCH more likely to get sued. So keep that in mind.



***Disclaimer: I am not a lawyer, nor am I giving legal advice so please do your own due diligence ***

Originally Posted by billy

I wrote a book that helps people with a psychological disorder. This disorder, however, could also be health related.

In this book I help people get over their disorder, ONLY if it is psychological. I explain over and over that if they feel in anyway that it is not psychological that they need to see a doctor.

My sister works for an insurance company and tells me that even though I have an LLC, I need to have it insured in case someone sues me. But I thought that's what the whole point of an LLC was for.

At this time I cannot afford the insurance but I want to launch it now.

I read several different blogs and some people say, "If your company gets sued declare bankruptcy and start another LLC with a different name." While others say, "If your LLC gets sued and you don't have the capital to back it up in your LLC account they could come after you personally. You need insurance!"

I don't know what to believe.

Please help.

Thanks!

Hi Truth. For someone just starting out who doesn't know much about taxes; should I just open a business account and make sure all my transactions come from it and no personal transactions? Would I be safe? Should I Use accounting software like quickbooks? Or speak with an accountant before I start?

Billy, what makes you think you have a medical product that would require more costly insurance?

Do you explicitly make this claim?

I have quite a bit of experience in the medical device field and I'm skeptical that your book would face the extra scrutiny required of medical products.

This may not answer your question, but if you do end up getting insurance, I'd be absolutely sure that your product fall under any medical category before paying more money.

Originally Posted by JamesS88

Hi Truth. For someone just starting out who doesn't know much about taxes; should I just open a business account and make sure all my transactions come from it and no personal transactions? Would I be safe? Should I Use accounting software like quickbooks? Or speak with an accountant before I start?

I am unsure of what structure your business runs under? (LLC,S-Corp, Sole proprietor, partnership etc)


Either way you should have a business account yes. All your business transactions should go through that account and if you can track everything not only does it make your accountants life easier(which we will get to in a second), but also the data will show you important statistics about your business.


Even if you use an accounting software however, it is very wise to still get an accountant because you will overlook things/ not record them properly/ pay more than you should etc etc.


Important: If you are doing business as a sole proprietor than mixing accounts won't matter legally but only for tax benefits. Legally you are personally liable for everything your business does and therefore everything you own is on the hook if you get into a lawsuit.

However, if you mix accounts while running a corporation, you can get in serious trouble and at that point tax benefits are the least of your worries.

Billy, what makes you think you have a medical product that would require more costly insurance?

Do you explicitly make this claim?

I have quite a bit of experience in the medical device field and I'm skeptical that your book would face the extra scrutiny required of medical products.

This may not answer your question, but if you do end up getting insurance, I'd be absolutely sure that your product fall under any medical category before paying more money.

Agreed. Just make sure your customers know that you are not a doctor and your disclaimer is rock solid.



***Disclaimer: I am not a lawyer or an accountant nor am I giving out legal advice so please do your own due diligence***

Thanks Truth. It's an LLC. Still waiting on it to go through...