And it got me curious. Almost everyone suggest getting an umbrella policy since it's relatively inexpensive. I agree. But is it worth it? And will the insurance company defend their clients? (assuming it's out of the client's control)
And I read somewhere that if you have over $1 million policy, your insurance company would have attorney representation on your behalf?
Are we all so brainwashed that in this litigious society, we need to get all sorts of insurance, just for piece of mind?
Do you KNOW of anyone that has been through litigation where they had to rely on the umbrella policy?
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
My insurance agent had my home, auto, and various landlord policies carry a maximum of $500,000 liability, and anything over that is carried in the umbrella.
I originally carried $1,000,000 when I started, and increased it to $3,000,000. Premiums was originally under $1,000, and few million more only ran me another $200 to $300.
Totally worth it. Some scammer had a slip and fall, got a lawyer after me. I told him don't bother me, to go after my insurance. The lawyer dropped the client and case after 6 months because it was too much trouble. The scammer gave up on me after he pleaded with me to give him a few bucks to go away, and I said NO.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
9y
This question has been debated endlessly.
Points to remember: an umbrella policy and a protective corporate entity aren't mutually exclusive. This simple truism seems to baffle many BP members.
Many people speak with absolute surety that an umbrella policy is all they need and feel it will protect their wealth. Concurrently a very small fraction of these people have actually had to employ their policy in hopes of defending their assets or know anyone who has. Is it possible that an insurance company may find any reason legally possible to weasel out of paying a 3 million dollar claim?
Umbrella policy's are so cheap there is little downside to buying one if you actually have the assets to protect.
Points to remember: an umbrella policy and a protective corporate entity aren't mutually exclusive. This simple truism seems to baffle many BP members.
Many people speak with absolute surety that an umbrella policy is all they need and feel it will protect their wealth. Concurrently a very small fraction of these people have actually had to employ their policy in hopes of defending their assets or know anyone who has. Is it possible that an insurance company may find any reason legally possible to weasel out of paying a 3 million dollar claim?
Umbrella policy's are so cheap there is little downside to buying one if you actually have the assets to protect.
Steve, exactly! Umbrella policies are so cheap, therefore I feel like there is a catch.
Bay Village, OH · Member since 2016 · 155 posts · 55 votes
9y
Chris T. Having a legal entity for protection helps without question.
Another simple thing, but vitally important, is be kind and thoughtful to your tenants or colleagues. The golden rule is the cheapest but one of the most productive ways to reduce risk, I tell clients. Secondly, remember to maintain your asset. Don't let it turn into a place you wouldn't let your mother visit or at least make sure it's not a place that would shame your family name.
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
9y
Chris T. If you don't have much equity or net worth then liability might considered a luxury.
If you have equity and/or net worth an umbrella policy is priceless.
If you've ever been to court you know you don't want to go back. My insurance company is defending me against 2 slip and fall lawsuits. I've been to court for depositions and passed along some information. Maybe 4 hours of my time total in 3/4 year lawsuit respectively. I am expecting they will settle but have no crystal ball. I plan to have an umbrella policy as long as I own real estate.
Ive seen a lot of accidents/ injuries. Countless times I see people walking around yelling and making scene after an accident. As soon as the ambulance comes they drop down call for a neck brace and start asking for witness'.
As a landlord, I know eventually something will happen out of my control. I don't look forward to being in court, therefore I'm taking the necessary steps - legally - and of course always treat tenants with respect, such as John and Paul suggested.
It sounds like your insurance company is stepping up. In your 3/4 year lawsuit, has your insurance company billed you for any of their attorney's fees?
Chris T. Having a legal entity for protection helps without question.
Another simple thing, but vitally important, is be kind and thoughtful to your tenants or colleagues. The golden rule is the cheapest but one of the most productive ways to reduce risk, I tell clients. Secondly, remember to maintain your asset. Don't let it turn into a place you wouldn't let your mother visit or at least make sure it's not a place that would shame your family name.
Paul, what do you think of @Dave Van Horn 's 1st point of alternative asset protection. I thought it's an interesting strategy.
I heard from another investor using debt as very little risk to purchase houses. But Dave uses debt to reduce the equity to protect them.
How about putting assets in life insurance and retirement vehicles? Obviously not as liquid but I believed those money are the most protected, even if something happens.
I have a very close friend that has owned an insurance brokerage for 30+ years so I get no-BS answers from him regarding insurance products. He explained that there are certain instances where an LLC may make more sense than getting layered insurance (such an an umbrella with regular rental insurance). One of the big ones that made the most sense to me is this: If you have 10 properties under and LLC and someone sues your LLC, they can take only the assets in the LLC, so at most you risk the 10 properties but not your personal assets, savings, etc. If you have those same 10 properties in your personal name, you run the risk of losing EVERYTHING without coverage. If you have an umbrella policy, it will protect you against 99.9% of the lawsuits that will ever threaten you. The benefit is that IF you get sued, the insurance policy will generally pay off the suit and you keep the assets. The LLC will only separate your assets but not protect them from being liquidated. If you have tons of assets and can afford to lose some without making a dent in your finances, then maybe take the risk? But for $400/year to cover all my rentals, my vehicles, personal home, etc. I think it's a steal. AND a write off!
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
9y
Chris T. - Some great advice here. One thing to consider is potentially losing your personal insurance (including umbrella) if there is a black swan claim stemming from business/llc activities. Another thread mentioned a guy who had trouble getting insured on his personal residence after having 5-6 rental property policies (in his name) and 3 claims in a short time (stolen pipes, flood, etc.) . I had business owners insurance ($200/mo) for a store LLC and had two claims within a year related to theft from the business. I don't know if I would have been dropped or my rate would have gone up because I closed that business before the policy renewed. I have 0 claims in 9 years despite experiencing several marginally claimable events (damage greater than deductible) on my homeowners policy because I didn't want to lose my no claims discount.
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
9y
One thing that my insurance agent told me is this. The umbrella insurance's benefit really kick in when something happens when you are driving your car to go to a grocery store and hit someone, for example. Once the person who got hit finds out that you owe a lot of properties (even if they are in LLC), he can try to take all of your assets, and a regular insurance itself may not be enough to cover the cost.
I used to think that the main reason why we should have an umbrella insurance is when someone slips and fall in your property and when the regular insurance doesn't cover the whole cost, umbrella can take care of the rest. This is still the case, but likelihood of something happen while you are driving is higher than something happens at your rental properties.
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
9y
Chris T. No bills from the attorney. I have no idea how many hours they have billed at his point. I will say this. I've had the same insurance policy for over a decade. These are the only claims.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
9y
I also have nationwide. I've heard from other investors such as the Derosa Group that the insurance umbrella policy will take care of these bogus scammers.
I had an illegal immigrant driving without a license cause an accident, her fault entirely and tried to sue ME! This was years ago when I was with esurance. Of course the crazy lady tried to sue me when insurance declined to pay her anything considering it was her fault. She didn't even have any damage, I was in the hospital and my car totalled (old suv with steel bumpers vs newer plastic car, lol).
Note the insurance company didn't tell me they had to represent me if I got sued. My uncle who is an attorney told me that after I got served with papers. I could feel the insurance agent sinking in her chair when I told her they were responsible for representing me since they declined to pay.
Long story short, it was a 2 year legal battle of deposition, motion and other legal BS after more legal BS. In the end she lost and went away.
Insurance company told me the only person that never changed their story in that 2 years was me. I told them that's because I'm telling you the truth, I'm the victim here!
Suffice it to say I lost faith in the system after that. The suit should never have been allowed to be brought forth. Of course the state police let the illegal immigrant roll away from the scene despite them admitting they were here illegally and were driving without a license. The life partner drove away with her as a passenger after the accident.
Investor · Evans, GA · Member since 2015 · 190 posts · 103 votes
9y
@Jack B....sounds like you got put through a stress ringer from an unmeritorious case. I wonder if a little call to ICE might have had her singing a different tune. ;-)
@Jack B....sounds like you got put through a stress ringer from an unmeritorious case. I wonder if a little call to ICE might have had her singing a different tune. ;-)
Back then? Probably not. Now, maybe. She was here illegally from Vietnam. But yeah, I've become colder since that incident. Basically I view the "justice" system as a criminal rights system.
Bay Village, OH · Member since 2016 · 155 posts · 55 votes
9y
Hey, @Chris T. - I like @Dave Van Horn 's thinking for sure. Having no equity in your property will likely ensure that chasing a judgment will be a waste of time for the plaintiff (and his/her lawyer). However, that also means you've been sued at that point.
There are a lot of ways to reduce risk. Unfortunately, there's not one size fits all. One other important consideration is due diligence As you know, due diligence is key in any transaction and will make or break success. Whether it's finding the right tenant or buying at the right price point, so you're not nickel and diming your property to break even, the due diligence done pre-purchase will save a lot of trouble, too.
Thanks for bringing up this topic. As you can see, lots of folks have chimed in.
The idea is to never have to use the umbrella policy but the David John Marotta article you posted, seems to be spot on.
In over 30 years, I only almost had to use it once. A woman attempted to sue me for a slip and fall in the alley behind a property I owned. It snowed and we shoveled the walk but the alley adjacent to it, we did not. The thing was, we didn't own the alley. The township did. Well that didn't stop this person from trying to sue me personally for $400,000 (on a property that had a $300,000 policy on it). Luckily, I had a $2 million umbrella to cover me if the case stuck, which it didn't.
I was represented in court by an attorney provided by the insurance company (for a scenario under $1 million) at their expense. The problem was, I felt they didn't represent "me", IMO they represented the insurance company. In fact, in the slip-and-fall case that I encountered, I almost had to hire my own counsel to represent myself. The lawsuit dragged out 5 years and the insurance company ended up settling for $50K just to end the suit (if it were up to me and my counsel, I don't think we would've settled).
The point is, the umbrella policy definitely did provide piece of mind during this lawsuit (and could've provided much more if necessary), all for an affordable price. I also have properties in other buckets (entities, trusts, etc) for additional protection. I don't think the umbrella is better than an entity, an LLC will separate the ownership which is different and equally important thing.
Also if you're looking for recommendations, most of the national carriers (Statefarm, Allstate, etc) offer umbrella policies. I actually have multiple carriers so no one company can raise all my rates at once.
Investor · Grapevine, TX · Member since 2014 · 88 posts · 75 votes
9y
My lawyer said I'm exposed to a much higher risk of liability in driving my car daily than in owning rentals. He said when the liability becomes real, his service to defend me will cost me significantly more than an umbrella policy, so I better get all the umbrella coverage I can possibly afford, it's the cheaper option and it will settle much faster than a full length lawsuit.
Umbrella policies are NOT all the same, take the time to find out what exactly they do and do not cover. Here's a link to an article that explains this aspect:
Last year I was in a huge accident. It was not my fault. The person who was at fault was under insured. The problem was I had a passenger in my car. One of the guys who does work for me.
The underinsured driver's company only paid $ 25K towards my damaged car. I had a $ 119,000 in car claim for a total loss on a brand new car. I got away with out a scratch but the guy riding with me got a whip last injury because of the seat belt. It could have been far worse. I was very glad to have a very good sized umbrella policy. It could have been a night mare and not even my fault.
You fault or not it can become your liability. Thank not was was hurt bad at all but it could have been a major disaster. You think about it but it can happen to anyone and just like that everything you have built can be wiped out.
These policy are very inexpensive relative to the peace of mind and benefit just in case.