Looking for umbrella insurance recommendations

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Looking for umbrella insurance recommendations

Romain Nguyen
Investor · CA · Member since 2020 · 12 posts · 7 votes

Hi all, 

I'd be interested if some of you can share recommendation of good umbrella insurance companies that you're using, and am also interested in insights regarding the coverage that you selected. I understand that these parameters are largely dependent on everyone's situation, so here's more context: 

- I live in California and am planning to buy my first rental property outside of California (I'm planning to do buy and hold) 

- I was initially considering establishing an LLC in order to protect my personal assets, but I realized via other threads (link) that doing so would cost me about $800 / year since I am a California resident, and the law requires me to establish the LLC in California. These costs sound high for a first buy and hold property, and using am umbrella insurance seems to be a good alternative at a fraction of the cost. My understanding is that an umbrella insurance is an appropriate alternative as long as my portfolio of properties remains modest (this article and the example of the warehouse was insightful) 


Thanks in advance for any insights that you can share, and have a great weekend, 

Romain


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Ana Marie B.
Rental Property Investor · SF Bay Area, CA · Member since 2015 · 206 posts · 156 votes
6y

@Romain Nguyen - You’ll want to purchase umbrella insurance through your auto insurance provider. In my case I use GEICO. Low cost.

Glad you're leaning towards umbrella insurance over LLC for your first rental. Smart move. Good luck!

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  • Ana Marie B.
    Rental Property Investor · SF Bay Area, CA · Member since 2015 · 206 posts · 156 votes
    6y

    @Romain Nguyen - You’ll want to purchase umbrella insurance through your auto insurance provider. In my case I use GEICO. Low cost.

    Glad you're leaning towards umbrella insurance over LLC for your first rental. Smart move. Good luck!

    2Reply
  • Steve Graves
    Rental Property Investor · Lancaster, CA · Member since 2015 · 103 posts · 55 votes
    6y

    I  have an insurance agent that handles my cars and rental properties. Find an agent that handles all of your insurance and the umbrella policy will cost a lot less. I think posting an insurance company is against BP policy so just find a good agent and they  will get one for you.

    1Reply
  • Stephen J DavisBusiness Member
    Rental Property Investor · Houston, TX · Member since 2017 · 529 posts · 467 votes
    6y

    I keep $300,000 to $500,000 on each house and my umbrella is for $1,000,000.

    0Reply
  • Romain Nguyen
    OP
    Investor · CA · Member since 2020 · 12 posts · 7 votes
    6y

    Thanks all for the replies, it's helpful. 

    0Reply
  • Nick W. Graham
    Attorney · Carrollton, IL · Member since 2020 · 65 posts · 14 votes
    6y

    @Romain Nguyen Umbrella policies should be an additional protection, but not the sole protection.

    Whether you own one rental property or 100+ it makes sense to use the legal protections afforded to an LLC (or other limited liability entity). There's a reason successful businesses use them - they work!

    The $800+/- annual fee may seem trivial if you end up having your personal assets tied into a judgment should things go South. Just a thought...

    1Reply
  • Michael Robbins
    Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes
    6y

    I use umbrella insurance. There are usually minimum liability coverage required on your auto. I do not have an LLC for my rentals.


    My understanding is that the LLC can easily be pierced anyway so that is why I opted for Umbrella Insurance.

    1Reply
  • Romain Nguyen
    OP
    Investor · CA · Member since 2020 · 12 posts · 7 votes
    6y

    Thanks Michael. Which liability limit did you put on your umbrella ? $1m or above ? 

    From what I've seen, you're indeed at risk of veil piercing if you do not observe some basic principles with the LLC (e.g. need to file annual report and pay fees, not mix up personal vs. business funds, etc.). As long as you respect these rules, it seems a safe option but it seems that the LLC does not always provide the best outcome for an investor depending on the scenario. The examples in the article I pasted above were quite enlightening for me: 

    Scenario 1: Umbrella insurance

    The landlord owns a triplex worth $700,000. A tenant breaks their leg on the property. The tenant sues the landlord for $300,000.

    LLC: The LLC has assets of $700,000. The LLC pays the full amount of $300,000.

    Umbrella insurance policy ($10,000 deductible/$1,000,000 coverage): The dwelling insurance picks up the liability max. After that, the landlord personally pays $10,000 out of pocket for the deductible. The umbrella policy would pick up the remaining balance plus legal costs.

    Result: The landlord would be better off with the umbrella insurance policy. With the LLC, the landlord would lose $300,000. However, with the umbrella policy, the landlord only loses $10,000.

    Scenario 2: LLC

    This unfortunate situation happened in Oakland, California. A landlord rented out a warehouse as an event and residential space. A fire ignited at the warehouse, killing 36 people. Prosecutors sued the owner and leaseholder for “negligently ignoring safety hazards.” Insurance paid out $3 million to the owner for the fire. However, 31 of the 36 victim’s families sued over the fire.

    We don’t know yet how much the families will win. Let’s say they win $20 million.

    LLC: The judgment is $20 million. The value of the warehouse is $3 million. The landlord loses the warehouse and insurance payout. The total monetary loss is $6 million.

    Umbrella Insurance Policy ($10,000 deductible/$3,000,000 coverage): The landlord goes bankrupt, losing $20 million.

    Result: The landlord is better off with an LLC, which shields them from personal bankruptcy.

    Ultimately, landlords should make a decision based on their own real estate portfolio. An umbrella insurance policy is generally the better financial choice for most small portfolio holders.

    3Reply
  • Michael Robbins
    Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes
    6y

    I selected an umbrella that will cover my assets.  I have updated it over the years to keep up.  

    0Reply
  • Nick W. Graham
    Attorney · Carrollton, IL · Member since 2020 · 65 posts · 14 votes
    6y

    Sure, poorly drafted LLC operating agreements and loose accounting leads to the demise of many LLCs. That said, there's a reason almost every successful business (from Google to the mom-and-pop shop) are incorporated. Pretty clear: follow the law, protection will too.

    We often represent tenants and welcome litigation where the landlord has an umbrella policy with no liability protection (ex. LLC). We know we're getting paid (thanks insurance) and can attach their personal assets. Best of both worlds (at least for the tenant).

    0Reply
  • Eric Mayer
    Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes
    6y

    I started with $1m and then bumped to $2m at 16-20 doors. Still under $500 for a year. 


    Large investors know you can still be sued under an LLC and have each property in seperate LLC's in case they need to walk away from one. Expensive and unnecessary in the beginning.

    1Reply
  • Kevin Lanphear
    Rental Property Investor · Acworth, GA · Member since 2020 · 70 posts · 25 votes
    11mo

    @Eric Mayer what company?

    For umbrella do you use and standalone?

    0Reply
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