LLCs and Property Insurance

[Ben Curry]

I'm in the process of moving each of my properties into separate LLCs to segregate them from each other. In the event that one tenant goes crazy and tries to sue me, I want to have a legal separation between the entities so they are insulated from legal recourse on all of them. As I quit claim deed each property from my personal name to the specific LLC, I also want to ensure the insurance on each property follows suit. Currently I am getting an amazing rate with Encompass Insurance as they bundle our rentals as well as personal home, auto, etc. Encompass does not allow for an LLC to be named as the policy owner, only as a secondary insured. I got a quote from our insurance agent and Foremost Insurance will allow the policy owner to be the policy owner but the rates are double what we are currently paying.

The question is this - to prevent the "piercing of the veil" of the LLC, does the insurance also have to be out of my personal name and in the LLC's? Or can I keep the insurance in my personal name with the LLC as secondary insured while still keeping the veil intact?

Thanks for your input.

~ Ben

[Sean Morrison]

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

This is the trade-off with LLCs. Insurance rates go up. The issue is less about piercing the veil, and more about giving the insurance company an excuse not to pay out because the LLC is not the primary covered. LLCs are great, but insurance is the first line of defense. You need to determine how much asset protection you gain from the LLC versus how much you lose through either paying higher insurance premiums or taking the risk of not being covered when the time comes.