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Insurance Alone Is Not Enough To Protect Your Business and Assets

Published on Apr 18, 2011

Summary

Check out 'Insurance Alone Is Not Enough To Protect Your Business and Assets' at 'Time to Start Up,' the small business blog by BizFilings.
Asset_protection_optWouldn’t it be nice to have a small business guardian angel? Someone who can watch out for all the events and issues that could trip you up on your pathway to entrepreneurial success. The reality is that all owners have access to the tools that can secure their businesses from unforeseen situations, and these strategies can be rolled up into comprehensive asset protection plans. For concerned owners, insurance is usually a primary consideration. From key-person insurance to business-interruption insurance, small business owners have many options. No doubt: A trusted insurance agent is a valuable partner to have, to secure your “peace of mind.” But insurance can only do so much when creditors come looking for a “piece of your business” or, worse yet, a piece of your personal assets. A number of commonly tragic small business situations aren’t covered by insurance policies. That’s why it is important to have a comprehensive asset protection plan in place—long before something goes wrong.

Limited Liability Enhances Your Protection

Such a comprehensive plan would never make the mistake of relying on insurance alone. The article, “Protecting Your Assets Requires More than Great Insurance Coverage,” outlines the three components of every well-developed plan:
  1. proper insurance
  2. limited liability protections from establishing a formal entity for your company, and
  3. efficient management of money into and out of the business to avoid exposure to creditors.
As the article points out, only the limited liability protections can prevent a complete meltdown of your business and personal assets, in the face of a lawsuit or other judgment. When you form a limited liability company (LLC), a regular corporation or an S corporation, the business and the owner are legally separated. The business becomes responsible for all business debts, and the owner’s exposure is limited to the amount of money he or she has invested in the business—and no further. Most insurance policies have limits and exclusions, so you could still be stuck with a hefty judgment. Moreover, insurance can’t help you if sales go down, and then you default on a customer or vendor contract, leading to a lawsuit. 

Develop a Comprehensive Plan

While limited liability may be the first among equals in your asset protection plan, that does not mean you can ignore the other two components. You still need insurance protections, or you better be prepared with a large bank account to cover the cost of certain hazards. At Business Owner’s Toolkit website, you can look into the common forms of liability insurance and property insurance for small business owners. When structuring and running your business, you also don’t want to leave accumulated business assets unnecessarily vulnerable to the claims of creditors. So it is wise to efficiently manage internal assets.

Keep Business and Personal Separate

Once you’ve gone to the trouble of creating this comprehensive plan, don’t make the mistake of rendering it useless. The law allows limited liability protections only for those business owners who conduct themselves in an expected manner.  If you misuse or abuse these unique legalities, you will lose them. If you mix business and personal activities or assets, your valuable limited liability protections will be ruled unenforceable, and all of your personal and business assets would be at risk. If you commit fraud in your interactions with others, your limited liability similarly evaporates, again exposing everything. So take the time to develop and execute your asset protection plan. That way, you can be your own small business guardian angel.

About the author

John L. Duoba is the publisher and managing editor of Business Owner’s Toolkit at www.toolkit.com, and he hopes to offer you peace of mind when he gives a piece of his.