Protection of your personal assets: LLC or increase insurance?

[Edita D.]

WOW, were were looking into putting our few units into an LLC to protect our personal assets in case tenants sue, and my accountant just advised me that apart from paying to FORM an LLC, there will also be an 800$ tax/year for California (we live here). The accountant expressed his disbelief in the advantage of creating LLC and recommended to increase our insurance.
How do you guys protect your personal assets?
Thank you!
Edita :)

[Brian Burke]

Mark, I think your doomsday scenarios would likely play out differently in the real world. In your first "insurance scenario", your insurer would be paying for your legal defense for a covered claim. In your "LLC Scenario" you would pay your own legal defense unless you had insurance, in which case it would be the same as your insurance scenario.

In your later post about the $5MM lawsuit with the $3MM policy limit, what would likely happen is your insurer and the plaintiff would likely settle out of court for an amount within the policy limit. If you had a ton of assets, the plaintiff might not agree, however. Lets say you are worth $10MM, the plaintiff will refuse to settle for the $3MM insurance proceeds because they think they can get the extra $2million from you. Simple solution: get a $10MM umbrella policy.

The LLC may provide you with some asset protection by discouraging lawsuits, and it may not. It all depends on how much you are worth, how much the LLCs are worth, etc. if you have a lot of various exposures (houses, apartments, medical practice, a restaurant, motel, etc) LLCs provide some separation of liability so that losses from one exposure don't wipe you out across the board. Regardless of all of that, insurance and good risk mitigation is always your first line of defense.