BiggerPockets

I've been advised that in addition to the liability protection an LLC provides, and in addition to the homeowner's insurance I cover on my rental property, I ALSO need insurance for the LLC that protects me from general liabilities that might arise....

Sounds like overkill to me...thoughts anybody?

All of the experts I have talked with say it's overkill.

You have your insurance as your first line of defense then you have the LLC. Which of course the main purpose of the LLC is for liability protection.

The extra stuff is just a waste of money that some insurance person is probably trying to sell you.

I agree with Gary. An umbrella policy is dirt cheap...usually much cheaper than the state LLC annual filing fees...and is much more likely to protect you in the event that something goes wrong.

Regarding working as the PM separately, here's my take. If the LLC owns the property and employs you personally--as an outside vendor and not as an internal employee--and something goes wrong and you get sued:

1. The injured party can sue both the LLC as the owner, the one ultimately responsible for the non-negligent management, and

2. The injured party can also sue you as the agent for the owner (LLC).

3. Since it appears your agency status as a PM is a sole proprietorship, they can attach your personal assets.

4. Since the owner of the property is the LLC, the judgment can also attach the assets of the LLC which include this property and any others it owns.

Which entity gets sued? That depends on which entity the attorney thinks has more money. If they sue the LLC and fail, or don't get a large enough judgment, they'll next try coming after you the individual, or contractor, or sole proprietorship...

A better solution would be to work either as an employee of the LLC and have the LLC perform both PM and ownership duties. (unless you've got 20+ properties, in which case you might want to open a separate LLC just for PM of all the units) If there is a legal employment agreement (or "work for hire"/independent contractor) in place between the LLC and you the employee, then only the assets of the LLC can be attached in a judgment and your personal assets are safe. Unless the infringement is gross negligence on your part as an employee (drunk on the job, etc.) in which case you're personally fully liable regardless.

And of course, you have to be running the LLC as a legitimate business, as mentioned above...

-Jeff

Jason Wrote:
"All of the experts I have talked with say it's overkill"

You are not talking to experts if this is the advise you received. You can never be over-insured, only under-insured. As Gary stated, umbrella policies and additional coverages are very inexpensive, and when needed, you will be glad you had it.

If you do not act in a negligent manner, as in the example Gary mentioned, you can avoid those situations, however, negligent or not, responsible or not, I would rather have the protection of the insurance to fight the lawyers rather than my own money.

Moral of this story is to make sure you have proper and adequate (if not excess) insurance coverage, particularly when you have multiple properties (multiple possibilities of litigation).

If this topic is still being followed, I would suggest that you play it safe. Like Gary indicated, many people think it is too expensive until they need it. I have been in the insurance industry for many years for one of the largest carriers (on the claims side) and I have seen what a loss can do to you.

If you have an LLC you probably can (and should) afford the policy(s) needed to accurately protect your interests. All it takes is 1 loss to wipe out everything you have worked so hard to accomplish.