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insurance for a rental LLC?
Old 10-24-2018, 11:46 AM   #1
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insurance for a rental LLC?

We're contemplating putting Dad's 4 rentals into LLCs.
His insurance agent is being a bit of an idiot (or just ignorant) about it... he just wants to add the LLC as an interested party to Dad's existing homeowners policy. Then got a bit facetious asking if we're going to put Dad's car and his personal home into an LLC too.


The insurance agent did state that the current umbrella liability policy would NOT provide coverage for any claims coming via the LLC.


Those of you who have rental LLCs:
1. who is the "named insured" of the LLC homeowners policy?
2. have you checked if your umbrella policy will cover you if the LLC is pierced?

3. which insurance company is your policies with?
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Old 10-24-2018, 12:07 PM   #2
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When I had rentals, we just owned them in our name. IIRC we had an individual policy on each rental, property, liability, etc. It would seem that the LLC or LLCs could do the same.

One important and often misunderstood issue: "Piercing the LLC" is not the only thing to worry about. When someone sues, they sue everyone: the LLC, the owner(s) as individual(s), any deep pockets entities that could be said to be involved, etc. Even if the owner successfully defends and the LLC is not pierced, there is a big legal bill to make that happen. So it is important that any insurance policy pay for this defense.

My company and I got sued (unsuccessfully) a number of years ago and our insurance hired one attorney to defend the corporation and another to defend me. This was because there could be conflict of interest issues if one attorney did both. The suit was settled quickly but I'm sure my defense cost the insurance company well north of $10K.

Re "facetious" you need a new agent. This is beyond unprofessional and shows a stunning ignorance. Find an independent agent that specializes in personal lines and small business and move the whole account to him.
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Old 10-24-2018, 01:41 PM   #3
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I am not a lawyer but this is what my online research suggested for handling rentals when we set ours up years ago.

For an LLC to be a separate legal entity (for legal liability - assuming that is your goal) everything for the LLC should be in the name of the LLC and kept separate from your personal finances. In our case, the title for each rental was in the name of the LLC. (You can do this easily with a quit claim deed). We used a separate insurance company, State Farm, for the rentals since our personal insurance company did not handle rental units. The LLC was the named insured on the policy. We were also insureds under the rental policy as individuals. You could have personal liability if you work on the property (this is the reason for adding the individuals to the policy). Additionally, we kept a separate second umbrella policy just for the rentals. We maintained separate checking accounts in the name of each LLC.
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Old 10-24-2018, 05:44 PM   #4
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We own one apartment bldg in NYC, with 4 tenants, including my sister, who is a part owner. My sister, brother, and I inherited the bldg, but with differing ownership shares, and two of us are out of town. We placed the bldg in an LLC for a number of reasons, including liabilty issues as well as straigthening out title to the bldg. We got a commerical insurance policy procured through an insurance broker, which covers third party liability, property/fire and hazard damage, and loss of rental income. (This policy was actually cheaper than a comparable homeowner's policy that we could get as an occupied homeowner if we didn't have the LLC.)

As I was a practicing lawyer, I organized and established the LLC in NYS; and enlisted the aid of an accountant friend to help with Partnership/LLC tax returns.

I have a personal umbrella insurance policy but it doesn't reach/stack against the commerical insurance policy for the LLC. I feel that the policy limits of this commercial policy, combined with the corporate shield of the LLC, is more than adequate to protect me against adverse situations. The LLC is named as the insured on the commercial policy and each LLC member is named as an additional insured.

The OP needs a commercial insurance broker to handle this. But be careful with organizing the LLCs, with multiple rentals and properties, you need sound exit/termination strategies. It sounds counterproductive to me to have separate LLCs for each property, unless you have complicated commercial properties or rentals.
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