Umbrella and General Liability Insurance

[John Boudreau]

I am new to bigger pockets but have been investing in single family and small multi family for the past 15 years and have grown to approximately 40 doors in Nebraska, Iowa and Missouri. The more I am reading and listening, the more concerned I get about liability protections. Currently, all of our properties are owned in an LLC but I am concerned that the legal protections of the LLC are not as solid as they once were. I also have general liability insurance, a personal umbrella (which I don't think will cover me as I may need a commercial umbrella). How have others structured their insurance and property ownership to maximize liability protection. I'd be interested in talking to any insurance professionals with thoughts. Thanks in advance.

[Ty Coutts]

Welcome to BiggerPockets! It sounds like you've built an impressive portfolio over the past 15 years. Your concerns about liability protection are valid, especially as your portfolio grows and the legal landscape evolves. While owning properties in an LLC is a solid foundation for liability protection, it's wise to continually reassess and enhance your strategy. Many seasoned investors bolster their liability protection by using a layered approach. First, ensuring that each property or group of properties is held in a separate LLC can limit exposure, confining potential liability to the specific entity involved. Additionally, augmenting your general liability insurance with a commercial umbrella policy can offer a higher level of protection, potentially covering gaps that a personal umbrella policy might not. Consulting with a knowledgeable insurance professional can help tailor a policy that addresses your specific needs and risks. Furthermore, maintaining rigorous property management practices, keeping thorough records, and implementing robust tenant screening procedures can also mitigate risks. Networking with other experienced investors and legal professionals within the BiggerPockets community can provide further insights and strategies to safeguard your investments.

[Drew Sygit]

Speak with a commercial insurance professional that works with real estate investors.

They'll know more than anyone here!

Or you could search for "insurance" experts here on BP and contact them.

[Stetson Oates]

Your LLC's GL policy is the first line of defense, the LLC's Umbrella is the second, the LLC is the third. As Ty said above holding each property in its own LLC limits liability significantly, however it can be difficult to manage and maintain the corporate vail by keeping each LLC's finances separate.

[Louis A.]

Quote from @Stetson Oates:

Your LLC's GL policy is the first line of defense, the LLC's Umbrella is the second, the LLC is the third. As Ty said above holding each property in its own LLC limits liability significantly, however it can be difficult to manage and maintain the corporate vail by keeping each LLC's finances separate.

+1 Exactly. People smarter and more sophisticated than me in business law have advised that there are 1000 ways to pierce the shield of an LLC. For this reason I do not own any property in an LLC/Corp. I utilize my General Liability and have a separate commercial umbrella to manage the risk exposure. At the end of the day, everyone's circumstance is unique so it is best to speak with a professional.

[Henry Clark]

Contact Jack Struyk in Omaha.  He is the best Commercial insurance broker I have ever dealt with.  Been many years, tell him Henry Clark from Miindustry days in Lincoln says hello.  We do Self Storage and use Self Storage specific Insurance and thus have not used him.

Order of protection:

1. LLC; more importantly your LLC operating agreement. Do you have a note, you can discontinue distributions as an example?

2.  Insurance

3.  Rental Contract

4.  Operating procedures- if not documented and performed, none of the above matter.  If documented and performed they will prevent or mitigate your exposure.