So I have an LLC for all my flips. I plan on doing some eventual buy and holds as well. Should I have an umbrella insurance policy? What kind of protection do flippers here on BP have?
When you say "Umbrella" insurance policy, what precisely are you wanting to protect? Are you wanting to increase your liability coverage for all your properties, say from $1 Million to $2 Million? Or are you wanting to "consolidate" your coverage for your properties into a master policy instead of having individual policies for each individual location?
Just wanted to clarify as there can often be quite a bit of confusion surrounding the term "umbrella." Wanted to make sure I was answering the question you're actually asking. :)
I guess I'm just talking about a policy to protect myself in a lawsuit from someone I sell a house to or a tenant
Thanks for clarifying Ryan, that helps!
In terms of protecting yourself from a business standpoint, professional liability coverage is what you would be looking for and/or Errors & Omissions coverage (E&O for short). That stated, sometimes it can be difficult for flippers to find coverage for their selling activities. It just depends on the carrier, really, and often times they will only insure the business activities of landlords or licensed realtors. I would look around and see what you can find, but using that verbiage will get you a little further in that arena.
When it comes to tenants on the other hand, there are two different categories of risk to be protecting yourself from. Firstly, if regarding any business activities, say, a wrongful eviction, or something of the like, that would fall under the coverages discussed above.
The other item that your tenant might want to sue you for is an injury on the premises. That being the case, you will want to make sure you have adequate premises liability coverage on each of your properties. Typically you will have both property coverage and premises liability coverage together under a single policy for a specific location, or if you are on a master policy your property and liability coverage may be separate.
In either case, typical levels of premises liability coverage are $100K, $300K, $500K, $1 Million, $2 Million... you can get higher liability limits than that (via an umbrella that jumps in to assist once the underlying liability limit is exhausted), but typically most investors have at least $1 Million per unit. If you have a 4-unit property for example, you will need more liability coverage than a single family property because you have more people coming and going and thus, more potential injuries that could occur.
The best advice I can give, however, is to be diligent in your business practices and in maintaining your properties. Insurance should be utilized for items that could "take you out" and are unexpected, but nothing beats a good risk management plan. Happy to help with some ideas for that too in a different thread... or perhaps that would be a good first blog topic for me to do... :)
Hope that helps!
PS, you will also have premises liability coverage for your flips too in case a 3rd party guest is injured on the premises. (Again, usually a limit of $1 Million is a good standard limit.) Usually this liability excludes the workmanship and injuries to contractors as they should have their own general liability and/or workman's comp. coverage to take care of those items. This would be if a kid playing in the neighborhood decided that your front steps make a great skateboard ramp or if Sally the Potential Property Purchaser slips on the ice while you are showing her the property.
That answers all my questions! Thanks so much for BreAnn Stephenson!
Glad to hear it Ryan! Always here to help... cheers!
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