Liability Insurance

[Mona V.]

Hi,

Probably a pretty basic insurance question but I need some help figuring out how to structure liability insurance for my rentals. I have four rentals properties in NC and they are all under one LLC right now. Currently I have liability insurance on each of the individual home insurance for 300K (for each house which I am aware is less). I was thinking of an umbrella policy to cover upto 2M. But then if I get an umbrella policy for that much amount, do I really need the liability on individual policies for each house? Also, should I insure my LLC for liability alongwith getting the umbrella policy OR, should I insure my LLC instead and not do the umbrella?

Basically, between the individual home insurance, LLC and an umbrella, what is an advisable way to insure for liabilty?

Thanks for your help!

[Cameron Skinner]

If you have mortgage on the properties the umbrella might be overkill the LLC will protect you if someone is hurt on your rental from going after your personal assets and you have to have a huge amount of equity in the rentals to make it worth an attourney to go after your properties because even if he gets a judgement he still has to foreclose on the individual properties and pay off the first mortgage, the cost of foreclosure would eat most if not all the equity and while in foreclosure it's not like you would continue to pay the mortgage or property tax ect reducing equity even more.

So I'm at church several years ago and a fellow member who is a personal injury attourney and I were talking about the bad economy, I say well it shouldn't effect you. He says it does because people are hurting so bad they let their liability insurance lapse because they can't afford it. So I read a few books on asset protection and big insurance policy can actually increase your chance of being suied because 2 million will have every slip and fall attourney in five counties salivating. I actually went as far as to cancel all my liability insurance. Two years ago one tenants dog bites another. We did not allow pets and had no idea he even had a dog, and of course said he was just dog sitting for a friend. A simi famous ambulance chaser files suit againts my LLC, remember he can't go after me personally because the property is in an LLC. I answered the complaint myself. Attourney sends "interrogator" basically questions several about any insurance policy's and financial assets of the LLC. Once he found out I had no liability insuance, my home owners did not cover dog bites, and I had a big mortgage on the property he dropped the case.

I'm not saying this approach is for everybody as liability insurance will cover legal cost and you need to be at least a little legal savy to answer all the legal filings, I'm just saying be careful as not to make yourself a bigger target. Don't forget if I had a 2 million dollar liability policy and God forbid that dog severely hurt or killed that girl they would sue for 10 million insurance would pay for 2 million and the LLC would still have a judgment on the LLC for the rest. With no insurance case would just be dropped, as it would cost more to go after my equity than the legal fees because remember attourney only gets 1/3 even if I have 30k in equity in the property, his cost going after the LLC will be much greater then 10k. Good luck!