Are umbrella insurance policies worth it?

[Praxis]

Thread title is self explanatory.  Any thoughts?
I've got two properties now, planning to obtain several more- I'm buying as many as I can at <4% interest and renting them out with lease options in which the tenant assumes responsibility for maintenance.  Should I consider adding an umbrella insurance policy, or am I throwing away money?

[arebelspy]

I've got one.

They're super cheap insurance.  200-400 bucks/year or so for a 1-3 million policy.

People are so sue happy these days, I'm willing to pay a tiny premium to make sure I don't lose everything I've built up.

Imagine someone falling on one of your properties and you getting sued for a million, and suddenly you're cleaned out.  No thanks.  Especially if you have many rentals, it increases the odds quite a bit.

(And I say this as a person not a fan of insurance in general - in fact, if I lived in one of the states where I could get away with no car insurance by posting a bond, like California, I would.. but don't tell I.P., cause we differ on that. I would, however, be self insuring and pay any debts that are my fault.)

YMMV.

[Another Reader]

Yes you should.  It's very cheap.  If you want more than around $3M, you may have to purchase a commercial policy.  I did that through State Farm.

Depending on where you live and where the properties are, you may want to consider LLC's as another form of asset protection.  A properly structured and operated LLC can limit your liability to the equity in the property, should you lose a liability lawsuit where the cause of the damage is excluded under the terms of your umbrella policy.  However, in Calfornia, LLC's are very expensive.

[Daley]

(And I say this as a person not a fan of insurance in general - in fact, if I lived in one of the states where I could get away with no car insurance by posting a bond, like California, I would.. but don't tell I.P., cause we differ on that. I would, however, be self insuring and pay any debts that are my fault.)

>.>

Dude... we've talked about this. You personally, I'd trust to make good and make right if you farked up. It's the rest of these yahoos who do it without the resources and responsibility necessary that scare me.

[arebelspy]

Yes you should.  It's very cheap.  If you want more than around $3M, you may have to purchase a commercial policy.  I did that through State Farm.

Depending on where you live and where the properties are, you may want to consider LLC's as another form of asset protection.  A properly structured and operated LLC can limit your liability to the equity in the property, should you lose a liability lawsuit where the cause of the damage is excluded under the terms of your umbrella policy.  However, in Calfornia, LLC's are very expensive.

My insurance agent offered me up to 5MM without it being a commercial policy, so YMMV on that.

Agree on looking into LLCs as a separate form of asset protection.

Dude... we've talked about this.

Yeah, I was just ribbin' you.  :D

An umbrella policy makes it a moot point anyways.

[Daley]

Dude... we've talked about this.

Yeah, I was just ribbin' you.  :D

An umbrella policy makes it a moot point anyways.

True dat.

Also... you, rib me? Surely you jest! Poked? Teased? Razzed? Sure, but I'm far too pudgy to be ribbed!

[Praxis]

Depending on where you live and where the properties are, you may want to consider LLC's as another form of asset protection.  A properly structured and operated LLC can limit your liability to the equity in the property, should you lose a liability lawsuit where the cause of the damage is excluded under the terms of your umbrella policy.  However, in Calfornia, LLC's are very expensive.

I was planning to do so; here in Washington state an LLC is only a couple hundred.  Can I just retroactively put my existing properties under the LLC? How do you go about doing so? (First time doing anything like this)

[arebelspy]

Depending on where you live and where the properties are, you may want to consider LLC's as another form of asset protection.  A properly structured and operated LLC can limit your liability to the equity in the property, should you lose a liability lawsuit where the cause of the damage is excluded under the terms of your umbrella policy.  However, in Calfornia, LLC's are very expensive.

I was planning to do so; here in Washington state an LLC is only a couple hundred.  Can I just retroactively put my existing properties under the LLC? How do you go about doing so? (First time doing anything like this)

As always, consult with your lawyer, especially as there may be issues with the title company insurance not covering it after it switches, but basically you'll just file a new deed and deed the property over to the LLC (likely a grant, bargain, and sale deed being better than a quitclaim deed, but again, consult your lawyer for specifics).

[Another Reader]

LLC's are tricky and you need legal advice in your state and in the state where the properties are located to make decisions.

With regard to umbrella liability insurance in California and Arizona, you must maintain the underlying liability policies to be eligible for umbrella insurance, at least with State Farm.  I spent some time with the agents in both states matching the deductibles in the umbrella policies with the limits in the underlying policies on the rentals.  In California I had to align the umbrella deductible with the auto insurance limit and personal residence limit as well.

Combining LLC's and umbrella policies gets very complicated.  Get the agent and the attorney to agree on who is named the primary insured and who is named the additional insured and make sure you don't have to purchase additional coverage to get all entities covered.

[igthebold]

LLC's are tricky and you need legal advice in your state and in the state where the properties are located to make decisions.

I have an LLC and did some research at the time I set it up. There is apparently some precedent for single-member LLCs not having the protection that multi-member LLCs do. The reasoning is that LLCs were created as a way of protecting a partner from another partner's misdeeds/mistakes. Single member LLCs don't have other partners to protect, so in many ways they are exactly the same as sole-proprietorships.

I've read that if you file your taxes as a corporation it helps, or something like that. This article about single member LLCs has some explanations, especially with respect to Florida case law that didn't protect a single member's assets from charges of fraud.

So yeah, definitely check with your lawyer.

Why did I get the LLC? Some companies won't do business with sole proprietors.

[salmp01]

I own several rental properties and I have chosen to keep most of them in my personal name and get an umbrella policy to protect against potential lawsuits.  So yes – call you agent today and set it up!  In my opinion this is more important than setting up an LLC.   Once you have an umbrella policy set up you can work on setting up an LLC if you wish to further limit your potential liability.  Also, if you decide to title your property in an LLC make sure to check with your lender.  They may have the ability to call you loan due if you change the title.

[kudy]

It sounds like an umbrella policy is only something you consider getting if you own property...

but would it be worth it for someone like me who has no properties beyond my home to lower liability coverage on my homeowners and car insurance policies to their minimums and then get a $1M umbrella policy?

[arebelspy]

It sounds like an umbrella policy is only something you consider getting if you own property...

but would it be worth it for someone like me who has no properties beyond my home to lower liability coverage on my homeowners and car insurance policies to their minimums and then get a $1M umbrella policy?

That'd be nice, but umbrellas typically require you to have a certain amount of coverage (usually 250/500 on cars) to have the policy, and they cover you any issues above that.

They understand that a car accident is the most likely type of accident you may cause a large amount of damage in, and want you to be covered for that first.

It's good if you have property, as the tenants (and other people using the property) increase your risk of being sued.  However, i could be good even if you don't have property if you have a sufficient amount of assets.