LLC versus Umbrella Policy

[Steve K.]

Hi everyone!

New investor here, trying to learn as much as I can from all of you veterans out there. Thank you in advance for your advice and help!

In general, does having a good umbrella policy offer adequate protection compared to forming an LLC for my future rental properties. I've been receiving conflicting information if the hassle of forming and maintaining an LLC is worth it. Could having a good umbrella policy adequately protect us against a tenant trying to sue us for our assets?

[Nathan Gesner]

What are the odds of being sued? Pretty slim. Most lawsuits against Landlords are security deposit disputes. Even if you were sued for a slip-and-fall or something major, your insurance should cover it. Insurance companies are in the game of making money. When they write you a policy with $350,000 in coverage, they know that the odds of you ever using that much are astronomically in their favor.

And how much equity do you have? It's ridiculous to see people setting up an LLC when they have just a few rentals with less than $100,000 in equity. Do you think someone's going to file a lawsuit and try to take your $350,000 insurance policy AND your equity?

There are probably a million investors on this site. Try to find one that's been sued for more than their standard insurance policy would cover.