Series LLC + Insurance Coverage

5 Replies

Need some perspective on insurance coverage as I'm unsure of the advice I'm getting from my insurance agent and lawyer.

We currently have 4 properties in their own respective LLC rolling up to a parent LLC. This is intended to limit any liability to just the business as well as to an individual LLC (property). This will protect the broader portfolio and our personal assets.

For insurance coverage, we have landlord (dwelling/fire) insurance for each property/LLC with $1M liability coverage each. However, I'm thinking of the worst case scenario with a suit of let's say $4M. How do we structure the best insurance coverage?

My agent mentions to go with excess liability for each policy and list the child LLC as well as the parent. I think an excess policy is more limiting than an umbrella policy. And I think listing the parent goes against the idea of having the parent in the first place which was to shield the portfolio of other properties. I'm not sure if by listing it, does it then expose the portfolio.

I'd prefer to get an umbrella policy for the additional $3M in coverage, but on that policy, I'd like to list the parent and all child LLCs.  For some reason, the insurance company won't write this as one policy but distinct ones with higher aggregate premiums when the exposure is the same.

Any thoughts on how best to structure the insurance coverage?

Originally posted by @Craig Fairfield :

Need some perspective on insurance coverage as I'm unsure of the advice I'm getting from my insurance agent and lawyer.

We currently have 4 properties in their own respective LLC rolling up to a parent LLC. This is intended to limit any liability to just the business as well as to an individual LLC (property). This will protect the broader portfolio and our personal assets.

For insurance coverage, we have landlord (dwelling/fire) insurance for each property/LLC with $1M liability coverage each. However, I'm thinking of the worst case scenario with a suit of let's say $4M. How do we structure the best insurance coverage?

My agent mentions to go with excess liability for each policy and list the child LLC as well as the parent. I think an excess policy is more limiting than an umbrella policy. And I think listing the parent goes against the idea of having the parent in the first place which was to shield the portfolio of other properties. I'm not sure if by listing it, does it then expose the portfolio.

I'd prefer to get an umbrella policy for the additional $3M in coverage, but on that policy, I'd like to list the parent and all child LLCs.  For some reason, the insurance company won't write this as one policy but distinct ones with higher aggregate premiums when the exposure is the same.

Any thoughts on how best to structure the insurance coverage?

Craig, you have the right idea with the single Umbrella policy listing all 5 entities.  That is standard practice and can easily be done.  Not sure why your agent/insurance carrier can't offer a single policy unless they have Personal Lines policies that do not allow multiple properties per policy?

Craig,
A couple of things to add:
1. the limits on the individual policies are not additive. Each $1mm applies only to that LLC.
2. If your intent is to separate the properties from a Liability standpoint review what you intend with your Lawyer. I've heard that anything that comingles funds can jeopardize the separation. It may not matter if you have enough of a limit on the umbrella but it may matter if you only had say $1mm umbrella limit.

@Craig Fairfield - Any updates on what you ended up doing?

I'm in a similar situation. I have three investment multi-family properties all under my current name. I'd like to put each of them under their own individual LLC but my insurance agent is telling me that if I do that I won't be able to have them all under the same group policy and I'll lose the discounts have to get get individual liability protection for each LLC then instead.

What do other people who have each of their investment properties under an LLC do? Do they pay higher premiums and aren't able to leverage multiple property discounts?

Or could I put each property under their own LLC, then have a parent LLC and have the named insured be the parent LLC and get the multiple property discounts?

OR, what about putting each property in a per property trust, and then having a master LLC own the trusts. Would that work to keep the properties separate but still get multiple property discounts?

@Jason Bilbrey the "multi property discount" is more of a Personal Lines discount and would be company specific, not industry specific.

Before doing anything, I'd suggest running these options past your current agent if you want to keep the same company.

Keep in mind, just because your current agent says it would be more expensive, it doesn't mean that another provider wouldn't be lower cost if you made the change.  

You can also quote those 3 locations with other carriers before making any changes.


@Jason Bilbrey - Unfortunately, I'm still working through the insurance structure with my agent.  I guess I'm not willing to accept the proposal of excess liability on the individual policies.  So no new news to report here.

With your situation, you have your properties in your own name. If this is your own personal investment and you are not in a partnership with anyone else, then I'd do research (talk to your lawyer) on the pros / cons of an LLC. An LLC is needed in my case given I'm in a partnership. It does shield assets from one another across properties but also from personal assets.

With that said, if I was doing this on my own with everything in my name, I would maybe consider not having them in an LLC. You'll save on legal fees setting up the LLCs, annual reports for the LLC, insurance discounts possibly, having 2 umbrella policies - one for personal and one for parent LLC, and the biggest impact could be on financing options that change when a property is in an LLC - it then becomes commercial loans at a higher rate etc. I would consider hitting the requirements of $1M in excess liability for each property on the insurance coverage needed and also get a personal umbrella for yourself that matches your net worth that includes the value of your real estate portfolio. That's just my 2 cents but I'd get 30 minutes with your lawyer to see if they can net it out for what's best for you.