Risk of an umbrella policy vs LLC for a first time investor

[Adam Vo]

Hello - I am looking to buy my first rental property and am considering taking out an umbrella insurance policy in liu of an LLC. This decision is purely about protecting my personal assets. I am planning to finance my property through a large bank and think an LLC would be more trouble at this point given potential challenges obtaining financing. Am I being careless or exposing myself to any risks with this decision? My fear is that I take out $3m of coverage and get sued for $4m. What level of coverage would you recommend on a $120k 2 unit property in the Midwest to sleep well at night?

[Frank Chin]

Three million should be enough although incrementally, though another million is not that much more.

My own experience with LLC's and S Corps is the plaintiff sues you and the LLC anyway, particularly if you self manage. If you use a PM, and snow isn't shoveled, the PM gets sued along with your LLC if you use one. Under similar circumstances, they sue the LLC and you if you are responsible for snow removal. Basically the entity and it's management, i.e. you, gets sued.

Through the years, money I save on LLC's, I get more insurance.