umbrella insurance or llc?

Question

Hi, I'm debating whether I should purchase umbrella insurance or setup an llc for my rental. Below is my conclusion

If lawsuit amount > umbrella coverage, I'd be liable for remaining balance and I could lose the rental and personal stuff. with an llc I lose rental only. So llc is a better choice

If lawsuit amount < umbrella coverage, there is no personal liability and I'd not lose rental. With an llc I could lose the rental. So umbrella insurance is a better choice

In both cases I'd lose my rental if a lawsuit arises. Is this accurate? Please comment.

To ensure I don't lose the rental regardless of the lawsuit amount, should I get both umbrella insurance and setup an llc? please advise. Thank you.

John Mocker · Answer

Vidyadhar,

I think you've hit on the true answer, the best scenario is both (umbrella & LLC).

From my standpoint I would say the Umbrella is more important because the more that is there to offer in a settlement the less likely they go after the property or try to break the veil.  The LLC would be important in limiting the damage if the judgement exceeds the available limits or is for something outside

I would suggest also getting your attorney's opinion on the advantages of the LLC for your situation if it comes to an either/or decision.

Vidyadhar R. · Answer

Thanks @John Mocker for sharing your thoughts. Something that is uncertain is whether corporate veil can be breached even if you follow rules of running an llc. keeping records, holding meetings, etc. I'll discuss this with tax attorney