Purchasing insurance to protect your assets is essential and sometimes even required by law. Starting January 1st, 2020, for example, all Californians were required to have health insurance; all non-compliant individuals faced the state’s mandated penalty.

Purchasing insurance for your properties can be likened to adding layers of clothes to your body during cold weather. But even then, insurance may not be enough. For instance, let’s say you run your business as a sole-proprietor, and someone sues you for wrongdoing. If your insurance coverage falls short in covering the remaining liability, your other properties are used to cover the remaining debt.

We strongly recommend that business owners form a limited liability company (LLC) in tandem with their existing insurance policies for asset protection purposes. The “charging order” feature offered for LLC’s generally discourages the extension of a lawsuit. You should consult with your tax advisor and asset protection attorney for further details.