Do an LLC and an S Corp have different insurance requirements?
A friend who has a small landscaping business operates as an LLC. (A few years earlier she operated as a sole proprietor.) She has basic liability insurance.
Her insurance broker advised her recently that she should operate as an S corporation because as an LLC her insurance costs would be $1,000 or $2,000 more expensive than they would be as an S corporation.
Is that correct? I don’t see a reason for such a difference.
That’s a great question and I believe you are correct. In all my years selling insurance, while the question is asked of what type of business entity you are, it hasn’t made a difference in pricing.
I’m digging into a couple of caveats that could possibly affect it to see if there is something I’m not familiar with:
Number of officers or partners
Insurance is run by state insurance commissions so there may be some nuances in the state you are in that determine whether there needs to be additional coverage for partners. (Keep in mind that this would primarily affect larger companies with investors and may affect policies such as workers’ comp, EPLI, and directors and officers insurance but rarely general liaiblity and business property.
What I would recommend, get a free quote under both scenarios. My guess is she won’t see a difference. I’d additionally recommend she confirm with a tax advisor to make sure which entity will be the best for her from a tax/personal liability protection standpoint.
I do have a few feelers out on this as well. If I come up with something else, I will update this comment – but didn’t want to leave it sitting.
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