I am a sole proprietor and I have liability insurance coverage, why do I need to worry about incorporating or organizing a company?

Liability insurance coverage is certainly an important part of protecting yourself and your business; however, your protection only extends as far as the coverage limits on your policy. If any claim exceeds your coverage limits and you are operating your business only as a sole proprietorship, your personal assets can be exposed to the excess liability. By operating your business through a corporation or a limited liability company, you can insulate your personal assets from any liability claims (provided you are careful to treat your company as a separate entity). In addition, your liability insurance coverage provides no protection for any contractual claims that may arise in the operation of your business (ie. breach of product warranty; breach of lease; failure to pay for goods/services).