On LLCs and Self-Insuring

insurance dollars

The question was:  “Can you LLC yourself as an insurance company then only insure yourself?”

DISCLAIMER: IANAL! (I am not a lawyer!) However, my undergrad was in Finance, INSURANCE, and Business Law, so there’s some education and a lot of experience in what I’ve said, below:

While you can, you’d not only have to go through state licensing requirements (expensive!), but you’d also have to carry assets to back up your insurance limits. And pay taxes on net income.

Definitely go with an LLC. By definition, an LLC — Limited Liability Company — A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.[1][2] An LLC is not a corporation in and of itself; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well-known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership.

The benefit is that unlike a sole proprietorship or partnership, where your own and your partner’s assets are on the line in case of a civil suit, with an LLC, provided you as the owner/operator/principal, or employee have done your due diligence to operate within the law, a civil lawsuit is limited to going after the assets of the company, and not yours, personally.

There’s nothing wrong with an LLC self-insuring. Just raise your deductibles to a sizeable fraction (a third? a fifth?) of your total assets.
That way, you’re carrying a part of those assets yourself, without paying insurance for them at all, which will greatly lower your premiums.

The part of insurance that remains is your safety net to keep you from being completely wiped out in case of catastrophe.

I have rich friends who typically carry either very high deductibles ($10k to $50k) on collision and liability, but they still carry insurance on the rest, and for good reason: The insurance company’s lawyers can go to bat for them if they need it.

Totally self-insuring isn’t recommended as you really don’t want to have to hire a lawyer for tens of thousands of dollars to defend you in a claim, and you really don’t want to be your own lawyer!

DISCLAIMER: IANAL! (I am not a lawyer!) However, my undergrad was in Finance, INSURANCE, and Business Law, so there’s some education and a lot of experience in what I’ve said, above.

Good luck

Author: patriot

It was a distinct honor, as well as my pleasure, to serve my country for more than twenty years. I love my country, but sometimes I'm not too happy with its leaders. I'm working to change that, and I could use your help. Please join me! Thanks. : ) - Patriot

Leave a Reply