LLC or Umbrella Insurance? Turning Current Residence Into First Rental Property

Member since 2023 · 3 posts · 1 vote

I recently purchased a new primary residence and plan to turn my current home into my first rental property. I'm not expecting to purchase any more investment properties in the near future. With this said, is an LLC necessary at this point in time? Or will standard liability insurance + an umbrella policy suffice for now? Thanks for the input!

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Owen RosenBusiness Member

Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes

It all depends on what assets you have and are trying to protect. Make sure you change your homeowners policy to a non-owner occupied policy and speak to your agent about your plans.

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Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
2y
It all depends on what assets you have and are trying to protect. Make sure you change your homeowners policy to a non-owner occupied policy and speak to your agent about your plans.
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Charles Carillo
Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
2y
@Drew Beale
You can contact your independent insurance agent, and let them know you changed the property to a rental property. They will change the policy to a Business owner's policy, which will have a higher liability limit. You can then add an umbrella policy above this. Make sure the umbrella policy provider is aware of the rental because, in my experience, it is not automatically covered.
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Dominic RosatoBusiness Member
Real Estate Agent · Jersey City, NJ · Member since 2022 · 82 posts · 61 votes
2y
Having a LLC (a type of business entity) and setting up an umbrella policy (provides a specified amount of liability protection) are decisions you should make independently of one another.
As someone who has previously worked in the insurance industry, you will want to do the following:
1) Alert your insurance company that this house is now a rental.
2) Make sure have this rental home covered for over $1 million in liability coverage. How you obtain that is up to you. You can either A) Set your liability limits on your rental home's policy to at least $1 million or B) Search around for an umbrella policy that adds $1 million in liability coverage to both of your properties.
$1 million in liability is what I recommend to have, but you can certainly go higher (or lower). I can't really speak to setting up an LLC, but I wouldn't assume that is necessary for you at this point.
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Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
2y
Quote from @Charles Carillo:

@Drew Beale
You can contact your independent insurance agent, and let them know you changed the property to a rental property. They will change the policy to a Business owner's policy, which will have a higher liability limit. You can then add an umbrella policy above this. Make sure the umbrella policy provider is aware of the rental because, in my experience, it is not automatically covered.

This isn't really accurate or clear. Single family rentals are not usually insured on a business owners policy. Business owners policies OR rental home policies do not automatically include more liability coverage.
An umbrella will not automatically cover anything especially if they're unaware of the exposure. For instance, if you have an umbrella policy and decide to purchase a boat even if you properly insure the boat you won't necessarily have coverage from the umbrella unless you make them aware you now own a boat. The insurance company needs to know so they can charge the appropriate premium for the risk. Same with adding another home or rental property.
Royal Oath Insurance Group4.9203 Reviews
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1 Reply
Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
2y
Quote from @Dominic Rosato:

Having a LLC (a type of business entity) and setting up an umbrella policy (provides a specified amount of liability protection) are decisions you should make independently of one another.
As someone who has previously worked in the insurance industry, you will want to do the following:
1) Alert your insurance company that this house is now a rental.
2) Make sure have this rental home covered for over $1 million in liability coverage. How you obtain that is up to you. You can either A) Set your liability limits on your rental home's policy to at least $1 million or B) Search around for an umbrella policy that adds $1 million in liability coverage to both of your properties.
$1 million in liability is what I recommend to have, but you can certainly go higher (or lower). I can't really speak to setting up an LLC, but I wouldn't assume that is necessary for you at this point.

We shouldn't recommend liability amounts without having any idea what we're trying to protect. If someone has $50 million in assets a $1 million policy isn't appropriate, etc.
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Charles Carillo
Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
2y
Quote from @Owen Rosen:

Quote from @Charles Carillo:

@Drew Beale
You can contact your independent insurance agent, and let them know you changed the property to a rental property. They will change the policy to a Business owner's policy, which will have a higher liability limit. You can then add an umbrella policy above this. Make sure the umbrella policy provider is aware of the rental because, in my experience, it is not automatically covered.

This isn't really accurate or clear. Single family rentals are not usually insured on a business owners policy. Business owners policies OR rental home policies do not automatically include more liability coverage.
An umbrella will not automatically cover anything especially if they're unaware of the exposure. For instance, if you have an umbrella policy and decide to purchase a boat even if you properly insure the boat you won't necessarily have coverage from the umbrella unless you make them aware you now own a boat. The insurance company needs to know so they can charge the appropriate premium for the risk. Same with adding another home or rental property.

As I mentioned, you must let your umbrella insurance company know about the rental (or boat). Is this a single-family house? It was not mentioned.
0 Reply
Drew Beale
OP
Member since 2023 · 3 posts · 1 vote
2y
Quote from @Owen Rosen:

Quote from @Dominic Rosato:

Having a LLC (a type of business entity) and setting up an umbrella policy (provides a specified amount of liability protection) are decisions you should make independently of one another.
As someone who has previously worked in the insurance industry, you will want to do the following:
1) Alert your insurance company that this house is now a rental.
2) Make sure have this rental home covered for over $1 million in liability coverage. How you obtain that is up to you. You can either A) Set your liability limits on your rental home's policy to at least $1 million or B) Search around for an umbrella policy that adds $1 million in liability coverage to both of your properties.
$1 million in liability is what I recommend to have, but you can certainly go higher (or lower). I can't really speak to setting up an LLC, but I wouldn't assume that is necessary for you at this point.

We shouldn't recommend liability amounts without having any idea what we're trying to protect. If someone has $50 million in assets a $1 million policy isn't appropriate, etc.

Thank you for the feedback. I’ve already changed my insurance to a rental property policy and will be sure it’s clear the umbrella policy needs to cover the rental property as well. $1 million will cover my assets and a $1 million umbrella policy is what I have quoted.
0 Reply
Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
2y
Quote from @Drew Beale:

Quote from @Owen Rosen:

Quote from @Dominic Rosato:

Having a LLC (a type of business entity) and setting up an umbrella policy (provides a specified amount of liability protection) are decisions you should make independently of one another.
As someone who has previously worked in the insurance industry, you will want to do the following:
1) Alert your insurance company that this house is now a rental.
2) Make sure have this rental home covered for over $1 million in liability coverage. How you obtain that is up to you. You can either A) Set your liability limits on your rental home's policy to at least $1 million or B) Search around for an umbrella policy that adds $1 million in liability coverage to both of your properties.
$1 million in liability is what I recommend to have, but you can certainly go higher (or lower). I can't really speak to setting up an LLC, but I wouldn't assume that is necessary for you at this point.

We shouldn't recommend liability amounts without having any idea what we're trying to protect. If someone has $50 million in assets a $1 million policy isn't appropriate, etc.

Thank you for the feedback. I’ve already changed my insurance to a rental property policy and will be sure it’s clear the umbrella policy needs to cover the rental property as well. $1 million will cover my assets and a $1 million umbrella policy is what I have quoted.

Great!
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Drew Beale
OP
Member since 2023 · 3 posts · 1 vote
2y
Quote from @Charles Carillo:

Quote from @Owen Rosen:

Quote from @Charles Carillo:

@Drew Beale
You can contact your independent insurance agent, and let them know you changed the property to a rental property. They will change the policy to a Business owner's policy, which will have a higher liability limit. You can then add an umbrella policy above this. Make sure the umbrella policy provider is aware of the rental because, in my experience, it is not automatically covered.

This isn't really accurate or clear. Single family rentals are not usually insured on a business owners policy. Business owners policies OR rental home policies do not automatically include more liability coverage.
An umbrella will not automatically cover anything especially if they're unaware of the exposure. For instance, if you have an umbrella policy and decide to purchase a boat even if you properly insure the boat you won't necessarily have coverage from the umbrella unless you make them aware you now own a boat. The insurance company needs to know so they can charge the appropriate premium for the risk. Same with adding another home or rental property.

As I mentioned, you must let your umbrella insurance company know about the rental (or boat). Is this a single-family house? It was not mentioned.

I’ll be sure to let my agent know the umbrella insurance needs to cover the rental property. And yes, this is a single-family home. Thank you for the feedback!
0 Reply
Jonathan SmallPro Member
Investor · Suwanee, GA · Member since 2020 · 182 posts · 151 votes
2y
I would create an LLC. You will need to update your insurance policy. I have home owners insurance for each of my properties. I also have an umbrella policy as supplemental coverage.
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