Contact
Subscribe
May 2, 2009 
Liability Insurance is designed to pay off someone who is harmed or damaged by another person or entity.
There are injuries that the “business” does, as an example if I own a store and you fall in it, then the business liability insurance would pay for the damages and if there wasn’t enough insurance then the assets of the business would be used and if there weren’t enough business assets, then the company would be bankrupt. They would not go after the owners of the company for their personal savings to satisfy the debt unless there was criminal activity or fraud involved. The “corporate veil” would protect you.
So, the business insurance protects the assets of a business since the insurance is used to pay off the claim instead of the business assets themselves. If you don’t have enough insurance, then your business assets still are at risk after the insurance is tapped out. So, having a thorough analysis of how much risk you are taking on, and insuring against that amount is vital.
There are also injuries that people do personally, say that you kill someone with one of your cars and they sue and win a $25 million judgment against you personally. In this case, they are going to get the full amount of your liability insurance first, then they will force you to sell everything you own that is not protected (example: homestead exemption in some states, retirement/pension accounts and income in some states) in order to satisfy the judgment. One of these personal assets is your ownership stake in any businesses you own. If you own part of a business, they could force you to sell your part of the business to raise money to pay off the creditor. (There are much more advanced asset protection strategies like trusts that provide more protection but this is beyond the scope of my expertise).
I personally do not think that assets can ethically be shielded from creditors if they are based on legitimate harm that you caused. But as we know, there are many frivolous actions and lawsuits every year and the most ridiculous ones can be stopped by taking sensible actions to protect yourself. In this case, the unscrupulous person will find an easier target.
One of the easiest things that people can do to protect themselves personally is to have enough liability insurance on their vehicles, and to carry an “umbrella” personal liability policy for at least $2 million.
Hope this makes sense…
Rob
19 Comments 
(103 comments)
• May 2, 2009 @10:00 am
(51 comments)
