Umbrella

[Michael Win]

Hi all,

I have 7 rental properties, high income professional (4-500K/yr), have a 1 mil+ personal residence, 1mil+ liquid/IRA net worth. 41 YO.

My properties are under my name and will not put them under an LLC. I currently have a 1 mil umbrella but my insurance agent thinks I should be at 3-4 mil.

Is 1 Mil enough or should I bring it up to 3-4 mil.  The cost would be an extra $750/yr

[Jason Bott]

@Michael Win there is no right or wrong answer, but up to your risk tolerance.  I have seen some lawsuits threaten landlords for amounts greater than $2M, but have not seen them settle for close to that amount.  If a claim comes through and settles for $2.5M, are you ok with paying the $500k to save the $750?  

You may want to shop you personal policy around.  Make sure you get options from the top companies who have preferred pricing for affluent.  By definition the home can not be less than $750k to get options from them.  Those companies are, Chartis, Firemans Fund, Ace and Pure.

As a side not, I have quoted $5M umbrellas for $1200 per year that can handle up to 55 units, but exclude personal residences and autos.  So your $750 may be a little high, but not outrageous.

[Jon Klaus]

You should probably review all your policies and adjust coverages as needed.  The extra umbrella limits are pretty cheap, so I'd up it if I were you.  

[Joe Bertolino]

Think of how much money it would cost to settle a major tragedy. A child hanging themselves on your blinds, drowning in a pool or bathtub, being mauled by a dog you don't even know about living at your property, etc. It doesn't even have to be your fault, if there is a picture of little casket in the courtroom then the deep pockets are going to pay. Those pockets can belong to you or an insurance company. These are all real claims I have seen or heard about. In these situations $1m isn't going to cut it and you have assets worth chasing. The difference between a $1m umbrella and a $3/5m umbrella is $300-500 per year. If I am in your shoes I would trade $300-500 a year to take away the uncertainty.

[Swetha Ragavan]

Just curious why are you saying you won’t put the property in Llc?

I am a newbie invester and planning to turn my first home as rental. My lawyer insists on LLC while my CPA suggests umbrella . In a dilemma. Like the poster I don't want to put my property in the name of Llc either. What should I do?

[Kevin Breslin]

I never thought of the umbrella as a alternative to an LLC. I can see how that would work. There is some cost and restrictions to LLC ownership and the umbrella is cut and dried x = n$ protection.

Does the LLC make an umbrella unnecessary? I would think not.

[Mike Jones]

@Kevin Breslin

I wouldn't believe and count too much on umbrella policy. They are full of holes and those insurance companies always find ways to deny claims. Usually a landlord policy would have a $300k to $500k liability coverage, plus the LLC, I believe should be enough.

I remember when I called in to inquire about umbrella policy and they told me they had to change my auto policy to be at $300k liability before they can sale me the umbrella at $400 a year but then it was gonna increase my auto policy by another $1000 a year. They force you to be at $300k on your policy because that is the what will pay out first before the umbrella kicks in. Usually that is enough and if not enough they will always try to find hole to deny the umbrella claim. Crooks

Just my 2 cents.

[Kevin Breslin]

Thanks Mike
The way I think about insurance is that when the value is high enough they will fight to defend a claim where if the value of the policy is low enough they will just pay out leaving the policy holder hanging for any additional claim. If the policy is big enough I think that if there is a case that they should pay a lawyer can go after the insurer.

[Barrett Grant]

@Michael Win yes, I’d highly recommend that. Given the income level and substantial assets, even a $5MM umbrella would be wise to consider. With all of those rental properties in your personal name, you have an increased risk of your personal assets being at risk should a lawsuit arise.