Liability Insurance

7 Replies

Hi Everyone,

Do I need liability insurance for my owner occupied 4 unit? Any insigh will be appreciated as I'm scheduled to close Thursday?! The property is not currently held under LLC, but I do plan to set one up in near future.

@Asia Callier

Why would you not want Liability Insurance? It is cheaper form of insurance and yet it insures against some prevalent issues . I would do it. I do not think an LLC is a reason not to have insurance.

 How much does it cost?

Originally posted by @Asia Callier :

Hi Everyone,

Do I need liability insurance for my owner occupied 4 unit? Any insigh will be appreciated as I'm scheduled to close Thursday?! The property is not currently held under LLC, but I do plan to set one up in near future.

I would especially want liability insurance if the property isn't held under an LLC. You're about to be running a rental business, and you don't have any of the corporate protections, so insurance against injury, property damage, etc. is a must have.

Even if the property is held under an LLC, you can have pass-through liability if you are the owner and plan to manage it yourself, so you need liability insurance to protect yourself.

Thanks  for  the feedback everyone. The policy  that included pesonal liability had a much higher premium, so my initial thought was to start with basic and add additional coverage once I figured out what was all necessary. 

Originally posted by @Lynn M. :

Even if the property is held under an LLC, you can have pass-through liability if you are the owner and plan to manage it yourself, so you need liability insurance to protect yourself.

Bit confused by what you're referencing here Lynn. The standard caveat of this not being legal advice applies, but the "pass-through" status of an LLC is generally a reference to tax liability, not tort liability. As far as I'm aware, you're protected from personal liability with an LLC so long as you A) don't make any personal guarantees (or violate a law which specifically creates liability for the owner, like a failure to make payroll tax payments) and B) keep the business separate from your personal finances and activities so that there's no opportunity to pierce the corporate veil.

What do you mean by "pass-through liability" here? Interested, since I haven't heard of it before.

@Will H. maybe it is a different phrase, but here is a good thread to read on what I'm talking about ... 

https://www.biggerpockets.com/forums/51/topics/196...

Basically, my understanding is that if you manage the rental yourself, you are "piercing the corporate veil" and may open yourself up to personal lawsuit whether or not it's in an LLC, for instance, your porch rail is loose and a tenant hurts himself when it gives way, both you, personally, and your LLC can be sued. One person in the thread said your tenant slips on an icy sidewalk and it's your responsibility to keep it clear. I'm not a lawyer so no legal advice, but when we researched LLC protections, we decided on an umbrella policy.

Originally posted by @Lynn M. :

@Will H. maybe it is a different phrase, but here is a good thread to read on what I'm talking about ... 

https://www.biggerpockets.com/forums/51/topics/196...

Basically, my understanding is that if you manage the rental yourself, you are "piercing the corporate veil" and may open yourself up to personal lawsuit whether or not it's in an LLC, for instance, your porch rail is loose and a tenant hurts himself when it gives way, both you, personally, and your LLC can be sued. One person in the thread said your tenant slips on an icy sidewalk and it's your responsibility to keep it clear. I'm not a lawyer so no legal advice, but when we researched LLC protections, we decided on an umbrella policy.

Ah - gotcha. You're referencing the fact that an LLC owner can be held liable if they personally commit fraud or act negligently. That's usually right, hence the need for insurance. Thanks for clarifying!

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