commercial vs landlord insurance (and LLC implications)

[Mike Dymski]

New to the community; so, thanks in advance for the help. Been reading the forum for years. I have a 25 unit apartment complex in its own LLC and two duplexes and a single family home in my personal name. I have read numerous threads on the forum and spoken with an attorney and two insurance agents and am still having a tough time determining how to best structure my properties among LLC and personal ownership (and the related umbrella coverages). All the professionals (and many investors) say use the LLC but struggle to answer my question on why personal ownership with a large personal umbrella is not just as good. If I would have put the apartment in my personal name, I would only need a personal umbrella and not need both a personal and commercial umbrella. If I move the duplexes and single family home into an LLC, then I may need a personal umbrella (for my non-rental stuff) and two commercial umbrellas. On top of that, I am fortunate to own the duplexes and single family home free and clear and may want to pull out that equity in the future to purchase other properties and the LLC will eliminate favorable residential financing. I am not concerned with anonymity, I use a 3rd party management company, and I am not aware of any tax implications of the LLC as they will be disregarded entities. Please help me understand why there is a preponderance of evidence that I should put the duplexes and single family home into an LLC and why the personal umbrella is not the better option. The only scenario I can think of is a catastrophic lawsuit above the large personal umbrella.

[Jason Bott]

@Mike Dymski,

Putting all properties into the LLC is eliminating the last 0.0001% chance your personal name will get caught in a lawsuit regarding your rentals. If you have a higher limit personal Umbrella, I don't see any issues with your insurance structure. As you stated, the only scenario is a catastrophic lawsuit.

There are other considerations if you grow the # of units,

1)  Personal Umbrella is not scalable.  It will only allow a few rental units, usually 4-5.

2)  A Commercial Umbrella can cover multiple entities as long as their is common ownership.  Example being , you own 6 llc's and some personally own rentals, they can all be combined onto this 1 commercial Umbrella.

3)  A $5M Commercial Umbrella will hit a threshold where the cost per unit is much less than insuring it on the personal Umbrella.  You may even be at that point now.