Does my LLC. need a personal liability policy?

Question

Hey guys,I'm in the process of closing on my second duplex and I honestly don't understand insurance as much as I'd like to. My situation: I'm closing on the property under my mom's and my name and then transferring the title into my LLC - I'm doing this to get a better mortgage rate/terms. Since the property will be under my LLC, the insurance company doesn't provide personal liability coverage on the home insurance policy. Therefore, I'm getting an additional personal liability policy for my LLC, with $300K in coverage. I was wondering if this is the right thing to do, or if I should be doing something else. I did this with my first duplex as well. I appreciate your time and help!

John Mocker · Answer

Marcos,You may want to see if they will write a higher limit than $300,000 and the cost. A lot of companies will do $500,000 or $1,000,000 limits for Liability. The cost normally is not that much higher for the additional coverage. if the company will not write higher than $300,000 you may be able to do an Umbrella policy to get an additional Liability coverage.

Account Closed · Answer

Hi @Marcos Carbi if you plan to rent out the property you do not need a homeowners policy. You need a dwelling policy (DP1 or DP3) or commercial policy that includes a general liability.

Bill B. · Answer

You want to have more insurance than you are worth. If you’d just starting and aren’t personally worth more than $300k than that’s fine. You’ll want that umbrella policy personally anyway since chances see you went perfect. If you aren’t perfect then you’ll make a mistake and the llc won’t help. If you do the llc part perfectly but any part of the loss was caused by a mistake you made you’ll be sued personally as well. (You didn’t get the ice cleared off the sidewalk, you didn’t notice the broken concrete, you forgot to mention the lead paint or the asbestos.) 90% of the time you’re sued (a number I just made up, so you know it’s good.) will be caused by an action or failure to act, not the property just sitting there. Imagine you hit a ped with your car, your dog really hurts someone, someone drowns in your pool the llc is worthless. The llc can be used if you’re really worried about privacy, though it will take about a minute to figure out the owner if you transfer it a week or a month after purchasing.TLDR: get an umbrella that’s higher than your net worth, get the llc if you want to pretend to have privacy.

Marcos Carbi · Answer

Account ClosedHi Barak and John, thank you for your contribution. Sorry, the policy I have right now is a DP-3, it just doesn't have Coverage L - Personal Liability. Therefore it makes sense to get an additional personal liability policy, correct?Thanks!

Sylvia H. · Answer

You cannot transfer title to an LLC if the home is mortgaged. If the lender finds out you did this, they can and will call the mortgage. Do people do it? Yes they do. If you get caught, don't say you weren't warned. Also you mentioned that you took out a mortgage in your name and your mothers name. If you took out a mortgage and presented to the lender that you were going to owner occupy the property you need to owner occupy the property for at least one year. If you don't, it's mortgage fraud and it's a federal crime. Lots of people tell you that the lender doesn't check or care. Not always true. Ask the cop in Jersey who bought a home as a first time homebuyer and didn't occupy the house. He got a year in jail and a 537k fine. And that was being easy on him. The guideline is 30 years in prison and 1 million dollars in fine. Ouch!

John Mocker · Answer

Marcos,Its a Cost vs Benefit. I always recommend purchasing the most Liability coverage you can. Then the decision comes down to cost. If its $20 more to go to $500,000, its an easier decision than if its $100 ... Ask yourself, if a claim happens, what you want to have for coverage and then see if you can afford it. You may also want to check with your attorney to see what range of verdicts are coming down in your area.

Marcos Carbi · Answer

@John Mocker They have the option to go up to $1M. Is $300K not enough? Do you suggest I do $500K or $1M?

Marcos Carbi · Answer

@John Mocker Perfect, my agent recommended this as well but I wanted to double-check. Thank you!!

John Mocker · Answer

Marcos,If the DP-3 does not include Liability, then you should purchase coverage for Liability. Both the DP-3 and Liability should be in the name of the LLC as it is the owner of the property. This is just based on what you have mentioned in the posts. I would strongly advise discussing this with you Agent and Attorney to make sure the coverage is correct for your situation.

Marcos Carbi · Answer

Additionally, the policy is under my LLC's name with my mom and I listed as additionally insured.