Choosing the Right Entity for Your Insurance Policy: Personal Name, LLC, or DBA?
When it comes to securing an insurance policy, one of the decisions you’ll need to make is whether to have it registered under your personal name, a Limited Liability Company (LLC), or a Doing Business As (DBA) entity. This choice carries implications for liability protection, tax considerations, and overall business structure. In this article, we’ll explore the factors to consider when deciding which entity type is most suitable for your insurance policy.
Personal Name
Registering an insurance policy under your personal name is the simplest and most straightforward option. It is typically suitable for individuals who have relatively low-risk personal assets and do not require additional layers of liability protection. This approach works well for small-scale endeavors, freelancers, or sole proprietors who conduct business activities under their own name.
Advantages
- Ease of setup: Registering an insurance policy under your personal name involves minimal administrative effort and does not require any legal entities.
- Simplicity: Personal name policies are generally easy to manage, making them a convenient option for individuals without complex business structures.
Disadvantages
- Personal liability: In case of a lawsuit or claim, your personal assets may be at risk since there is no legal separation between your personal and business assets.
- Limited scalability: If your business grows and expands, registering insurance policies under your personal name may become impractical or insufficient.
Limited Liability Company (LLC):
For those seeking personal asset protection and a more formal business structure, establishing an LLC can be a beneficial choice. An LLC provides a legal separation between your personal assets and your business activities, shielding your personal wealth from potential business liabilities.
Advantages
- Asset protection: As the owner of an LLC, your personal assets are generally protected from being seized in the event of a lawsuit or claim against the business.
- Tax flexibility: LLCs offer various tax options, allowing you to choose between pass-through taxation (where business profits are reported on personal tax returns) or corporate taxation (for potential tax advantages).
- Enhanced credibility: Operating under an LLC demonstrates a level of professionalism and can instill trust among clients and partners.
Disadvantages
- Administrative obligations: LLCs require adherence to specific legal and regulatory requirements, such as filing articles of organization and maintaining proper records.
- Cost considerations: Establishing and maintaining an LLC may involve expenses for registration fees, legal assistance, and ongoing compliance.
Doing Business As (DBA)
A DBA, also known as a “fictitious name” or “trade name,” allows you to conduct business under a name different from your personal name. It is often used by sole proprietors or partnerships seeking to operate under a distinctive brand name while maintaining a simplified legal structure.
Advantages
- Branding flexibility: A DBA enables you to create a distinct brand identity for your business without the need for establishing a separate legal entity.
- Simplicity and cost-effectiveness: Registering a DBA typically involves less administrative burden and lower costs compared to forming an LLC.
- Privacy: Using a DBA can help maintain some level of anonymity, as your personal name is not explicitly associated with the business name.
Disadvantages
- Limited liability protection: Unlike an LLC, a DBA does not provide the same level of personal asset protection, and your personal assets remain exposed to potential business liabilities.
- Legal constraints: While using a DBA, you may be subject to certain local regulations and restrictions regarding the usage of fictitious names.
Conclusion
Deciding whether to register an insurance policy under your personal name, an LLC, or a DBA involves careful consideration of your specific circumstances, business goals, and risk tolerance. While a personal name policy is the simplest option, an LLC or DBA can offer enhanced asset protection and provide a more professional business structure. Remember to consult with legal and tax professionals to ensure you make the best choice for your insurance needs and overall business strategy.
Video Transcript
Should an Insurance Policy Be Under Your Name, LLC, or DBA?
And I see that this is a question from a nurse. First off, a DBA is essentially ignored. It is just a nickname. There is no real reason to have an insurance policy under a DBA. But now the question is, do you have it under your LLC or your own individual name? To answer that question, it helps to understand what is an insurance policy. I know we all know what it is basically, but from a legal standpoint, an insurance policy is a contract that says if you are liable for something, somebody else will take over that liability, the insurance company.
Do You Want the Insurance Company to Take Over Liability for Your LLC or for You Individually?
Now, many times you can get it for both, and that is going to be best for you. You might have an insurance policy under your name, but your LLC is a named insured. So, in other words, we have named your LLC as also insured. The technical language for that in the insurance industry is the named insured. So the parties insured under the policy are going to be you and the LLC. That is going to be best. If you must pick between the LLC and you individually, then I would say who is more likely to get sued because you want to have your insurance policy where the lawsuits are going to be. And if the LLC has virtually no assets in it, like, for example, if a nurse is just providing services through the LLC, I wouldn’t be too worried about that LLC getting sued because the nurse could just shut down that LLC. It has no assets, and the lawsuit essentially dies with the LLC. So, in that case, I would say have the insurance policy with the nurse. Ideally, you have both. But if you must pick, have it with the individual nurse.
What if the LLC Has Other Valuable Assets in It?
But this would be very different if the LLC has equipment or real estate or other valuable assets in it; you will want that LLC protected and you will probably want to be protected yourself. So even if it costs you a little more to get protection for both the LLC and you, that is what I would negotiate with the insurance provider. Sometimes insurance companies do not charge extra to have an additional name insured for these types of claims. Sometimes they charge a little bit extra. Sometimes you have to have an entirely separate policy. It is all a contract with the insurance company, so rates are open to negotiation. That is not to say insurance companies are willing to negotiate their rates, but in theory, at least you can get different rates from different insurance companies. So you might check around and see if you can get both your LLC and yourself insured on a policy.
Conclusion
If you found this video helpful and you would like more educational videos like this, feel free to subscribe to this channel. If you have other questions, put them in the comments below. I am Aaron Hall, an attorney for business owners and entrepreneurial companies. You can learn more about me at aaronhall.com. And if you would like to sign up for our free resources, go to aaronhall.com/free. It was great to be with you here today.