General liability & umbrella

13 Replies

Hi,

I am trying to figure out what coverage i need for my assets. I own several rental properties under an LLC. I have a $2M General Liability policy to cover the properties/business. Should i also have a personal umbrella policy?

If the answer is yes, then should all my rental properties be listed on there or only my personal residence or ALL (rental +personal) properties ?

also, if I have an umbrella policy that includes my personal home and the rental homes, wouldn't this be co-mingling of assets in terms of legal issue ?

Hope my questions are clear.

Thanks for any advise.

@Jean B.

You may be confusing/mixing different scenarios...

If you hold Title to the rentals in your name you use property insurance (per property) and an umbrella policy (in your name).

When holding rentals in a LLC, you still need the property insurance (eg what if the building burns down...). Double check your $2M policy — is that a General Commercial Liability policy? GCL is different from the property (aka homeowner or landlord policy) — don't ask me, just want my insurance agent and other's tell me. Should have something to do with who is suing who and for what... Meanwhile, once you get enough going in your LLC (or because you want to), you get an umbrella policy for the LLC to cover everything in the LLC. It doesn't cover you personally.

Does that help?

PS. GCL is more so as business insurance. In NJ registered Home Improvement Contractors need it. So, i think it’s setup for the liability of operating a company doing work for clients. It’s not the same as operating rentals — as my insurance agent tells me (I’m kinda “slow” about insurance..)

@Jean B. Ideally you want a commercial Umbrella policy to go over the rentals in the LLC and a second Personal Umbrella to go over your Home & Auto.

Having a single Umbrella for everything can be done but it is dependent on the types of policy's insuring the rental.

sorry maybe i was not clear enough. 

I do have home owner coverage for my personal residence (title in my name), I have individual dwelling coverage for each of my rental properties (title is in the name of the LLC), I have a $2M CGL insurance for the LLC.

the question is : should i have 2 separate umbrella insurances (1 for perso and 1 for rental) ? or should/can ALL the properties be listed under the personal umbrella?

and if yes to the 2nd question, would this be considered co-mingling of assets in terms of legal issue ?

Hope this clarifies the question.

Thanks.

@Jean B.

In my layman's opinion, I'd get separate policies.

My idea of testing for an arm's length transaction is to try to work it out if two strangers were doing the deal.  For example, would I just declare your properties under my umbrella policy (let's not even get into if my insurance company would accept it since I'm not anywhere to holding Title)?  Could we come up with some business arrangement for that?  Say you pay for some of the premium..  I guess...  But, does this normally happen?  I don't think so.  Yeah, maybe now we bring insurance technicalities into play such as having an 'insurable interest' which would cause me to be a business partner of a sort.

You might get close to figuring out a scenario, but its either co-mingling or using your LLC as an alter-ego.

To put it another way, you assumbly used the LLC because you wanted increased protection and/or asset separation. So, get two umbrella policies and effectively double your coverage. You should be "paying" for the LLC's protection. You should already have commercial loans (you don't have the mortgage in your name, right?) and everything under the LLC's ownership. So, have the insurance policy under its name as well.

Be sure to speak with one or more qualified professionals.  Good luck.

From everything I have ever read or been told you should have separate policies to ensure you have the highest level of protection. I would highly recommend that you contact a local agent who can review you needs more thoroughly and shed a better light on your specific situation.

@Jean B.

David and Jason have given some pretty good advice. I encourage you to reach out to an attorney for legal questions, as these questions merit someone trained in the law. We're not allowed to hand out legal advice unless we're licensed attorneys. There are a number of reasons to contact an attorney, and it sound like this situation warrants a quick call to someone with legal knowledge.

Insurance is the first step to protect your assets. However, asset protection is more complicated than just getting insurance. Here's a really good article to explain the difference between insurance and asset protection. Another thing I would recommend, is look into the Series LLC to protect your real estate investments. Basically, a Series LLC is a LLC for your LLC. I know that seems a bit confusing, but the Series LLC is a good way to keep your properties separate, which in turn makes the properties more secure.

Let me know if you have any questions!

Thank you all for your input!!! Always good to have other people's view. One thing seems to be common to all : have a separate umbrella for personal and LLC.

Talked to an agent today and he kind of confirmed that; but in his final comment, it all comes down to how much coverage I want to have; how much is too much vs how much is not enough. (Having a CGL for the LLC is a first layer of insurance protection; the umbrella would come on top of that). So make your own decision....

Cal, I understand your point on not giving legal advise, but sharing ideas and giving input is what we are here for. Having a business I agree with you 100% you need a good attorney. But i'd rather go see him (or in my case my insurance agent)  once i feel i have most of the answers/options to my questions and only need him to help me pick the best solution to my problem. Attorneys are only legal advisors in a very restricted, limited field. Otherwise they are money pits (like insurance agents); it's all about playing with the right words and your emotions. I truly admire some of them for their skills.

In regards to the series LLC, when I created my LLC (10 years ago), i did research on it, talked to other investors; once i had a good grasp of the concept, i talked to my attorney and his view was : this was still a "newer" type of LLC that had not been really proven in courts yet and therefore he did not "push" for it; to him it was another option out there, but not the way to go (at the time, in my case); kind of an overkill. (goes back to how much protection is too much or not enough; risk aversion).

But thanks for mentioning it, as it is another option RE investors should consider when setting up their LLC.

@Jean B.

Maybe its region/State specific, but I'm still surprised how you need or can use a CGL for your "base" policy.  If your house burns down, for whatever reason, I thought the GCL wouldn't cover that.  You need to have a homeowner's/landlord insurance type policy.  That would also provide the base liability coverage to allow the umbrella policy to be effective.  The landlord policy should be cheaper than the GCL...

Anyway, as long you are good..  Take care, and good luck.

@David M.

You are correct in your statement that the CGL does not respond to a Fire loss.  A CGL is a Commercial General Liability policy, it does not provide any Property coverage.  A Property policy would be purchased along with the CGL.

Within the commercial insurance sector, it is very common to have company A provide the GL coverage and company B provide the Property coverage to get the best pricing.

A Landlord or Homeowners policy already has these 2 bundled together on the policy.

@Jason Bott

Thanks for confirming.  Perhaps the OP needs to explain her situation/needs to her insurance agent better or needs a new insurance agent.  Of course, its up to the OP to decide what is right for her.

Originally posted by @David M. :

@Jason Bott

Thanks for confirming.  Perhaps the OP needs to explain her situation/needs to her insurance agent better or needs a new insurance agent.  Of course, its up to the OP to decide what is right for her.

Part of the problem is an Umbrella is probably the most misunderstood policy in the forums.  9 times out of 10 non-insurance people will post an interpretation that is incorrect.

Investors use/need an Umbrella to simply have Liability limits higher than what their General Liability policy can provide (max is usually $1M) over their rentals.

If you had a contracting business, that Umbrella can extend higher limits over your commercial Auto, Work Comp, business locations, your product liability, etc.

A Personal Umbrella can go over your Home, Auto, rentals, Boat, recreational, etc.  It usually does not go over business operations.

To add to the complexity, each insurance carrier has different abilities and insurance agents are limited to the companies they are contracted with.

@Jason Bott

At least on BP I don't know about it being 9 times out 10...  But, for sure the umbrella is for liability coverage only 'over and above' what I call a "base" liability coverage.  Its that "extra extra" piece of mind just in case the base policy's limit is exceeded.

Originally posted by @David M. :

@Jason Bott

At least on BP I don't know about it being 9 times out 10...  But, for sure the umbrella is for liability coverage only 'over and above' what I call a "base" liability coverage.  Its that "extra extra" piece of mind just in case the base policy's limit is exceeded.

You get it.  Your exactly correct.