LLC’s vs. Umbrella policy

[Irasa Downing]

I am trying to understand who should I talk to about setting up multiple LLc’s for real estate multi family properties, other private equity and business ventures vs. having an umbrella policy to cover any concerns or issues. What do most people do? Any thoughts on s-Corp?

[Joe Splitrock]

@Irasa Downing insurance is more important than legal entities. Even if you put your properties in LLC, you still need good liability insurance. Imagine a situation where a tenant slips and falls on the ice. They sue your LLC. The LLC needs insurance to cover the claim or fight it in court. If your insurance has low coverage, the attorney extra award cost becomes responsibility of the LLC. The attorney will likely try to bypass the LLC and go after you personally to collect the money. They may not win, but many people make mistakes that open them up to the LLC being bypassed. If you are self managing, they can claim management negligence. If the property loan is in your personal name and bills are paid from your personal account, they can claim you are inseparable from the LLC.

If you are a single proprietor (own it directly) and have high liability coverage, the the insurance company will fight the claim and pay it. 

I guess the answer is really both, but if you have to pick one go for better insurance.