Liability Coverage for a house within an LLC

[Dan N.]

I am in the process of buying a $170K house. I plan to own it in an LLC.
I am quoting insurance companies and for liability coverage, I was wondering if the liability coverage should be approximately the same value of assets that are within the LLC (in this case, 1 house of $170K), or, should I have a much larger liability coverage ($500K-$1M)?

*No need to mention to me umbrella policies. I am aware but unfortunately they are not relevant to this discussion.

[Frank Chin]

@Dan N.

Liability coverage has nothing to do with the value of the asset. It has everything to do with what litigants can sue you for. If you owned a property with a broken stairwell where someone trips and falls, got incapacitated for life, why would their damages be restricted to $170K. I bought a business where the prior owner was sued for $3 million causing injuries to some customers. I was familiar with details of the case after I took over the business and his employees who has to take time off from work to attend depositions.

What happed in that lawsuit? The owner had $1 million liability insurance. The litigant attorney only learned the owner moved to Florida after selling the business and bought a home there. Because of the state's homestead laws, they cannot sue and take the million-dollar home. My employee was giggling when they told me the attorney taking testimony from them banged on the table, angry and yelling "we got screwed". They settled for the $1 million.

As to umbrella insurance being not relevant, I spoke to the owner a little later, he also thought the liability insurance was irrelevant little realizing that's what saved his hide. He knew nothing about Florida's homestead laws either as many in New York back then retire to Florida. He got away easy without realizing how lucky he was.

I owned several rentals back then and the business and my insurance agent thought $3 million umbrella coverage overall should be enough. Adding another million or two didn't cost that much back then. The $3 million number had nothing to do with the value of my rentals or business, but how large a lawsuit would be if something happens.

One more thing. Attorneys tell me having the LLC means little as they'll sue the owner personally and the LLC for negligence anyway.