Umbrella Insurance for newbie investor

3 Replies

I have 2 rental properties. I am going to have 1 more rental property next year. All of them are single family and listed under my name in state of Arizona (while I live in state of California)

I am planning to create LLC and move the houses from my name to that of LLC. Umbrella insurance is under my name. Is there a way that my personal umbrella insurance also covers LLC (I am not sure if I should go for 1 or more LLC)

@Kris Ashili personal umbrella will not go over an LLC. You will need a commercial Umbrella for that.

What is the limit of insurance you are looking for $1m, $2m, $5m?  A personal policy liability limit usually maxes out at $500,000.  Then the personal umbrella will take you to $1m or $1.5m.  A commercial policy can start at $1m, possibly $2m.  You may not need an umbrella:)

There are some insurance companies in AZ that do this.  PM me if you would like specifics.

@Kris Ashilistart with figuring out your net worth. Figure out how much all of your real estate is worth and deduct your mortgages. Then add in all of your money you have in the bank + 401K and other investments. Then estimate the value of your other assets like your car/truck, boat, other big ticket items. 

That's basically your net worth. Now get enough liability insurance to cover that amount. If you don't have it they can't sue you for it. If your net worth is $150K and somebody sues you for $1M where are they going to get the money? You may have real estate worth $1M but when you factor in the mortgages that have to be paid off you are left with a small percentage in many cases. This is assuming you don't own millions of dollars worth of real estate with no mortgages in which case you should be cashing out your equity and buying more properties. 

In any case, call a local agent and explain your situation and what you are looking for. Don't over complicate it with personal umbrellas vs. commercial umbrella policies. Your agent will speak with a few different providers and come back with a couple options for you. 

Good luck. 

I respectfully disagree with the last post regarding umbrella limit selection. You absolutely can be sued for and judgement awarded for more than your current net worth. No judge or jury knows your net worth. Liability limit selections are tricky. I have been in the insurance field for 17 years and this is a difficult topic area because there is no clear cut answer. You have to look at your exposure and try and identify the worst case scenario. Someone that has a single family dwelling doesn't need to carry as much as someone with a 200 unit apartment complex (ie. a massive fire in that complex could result in many injuries or deaths where in a dwelling your exposure (# of people exposed) is limited). Many people have a higher risk tolerance than others and go with the lower limits. But in short I just wanted to make it clear that you can be sued for more than your net worth & could be paying off that judgement for a lifetime with future earnings as well - it doesn't just disappear. There is a further discussion to be had about protection from establishing LLC's but then there is a counter discussion on piercing the corporate veils and getting to personal assets. My 2 cents - no offense to anyone.