Umbrella Insurance Policy or New Investors

[Travis Limbocker]

Hey BP,

I started my personal REI journey 3 months ago and am happy to announce we're in the process of closing on our first multi family deal! It's been a very educational process going through the steps to executing on our first deal. As a lot of you have said, it's all about taking action, or as I like to put it, just try.

I had a question for new and seasoned investors alike regarding Umbrella insurance policies. Now I'v read the forms, but nowhere in the thousands of posts does someone have an anecdote from their personal experience. I understand the arguments on both sides for an LLC vs additional liability (umbrella) insurance. We are not starting with an LLC, so let's take that off the table. I'm curious if anyone has a real life example of how Umbrella insurance saved them from a lawsuit? Because we'll only have one (1) property to start (duplex), would it make sense to pursue adding greater protection?

Any thoughts / examples?

[Derek Lacy]

Partially correct. Here's the rub. Insurance has the duty to defend and indemnify you. So let's say you buy $500,000 on a multi family building. There is as issue and someone is hurt bad. Plaintiff attorney is going for $800,000.

The only way an insurance company can get out of paying for defense is to pay out the policy limit. So they pay $500,000 and tell you to hire an attorney because that other guy still wants his $300,000.

So now that guy has a $500,000 war chest to go after you.

Buy an umbrella, then you have the insurer on the line for $1.5mm or higher. That extra $200 you spent a year on umbrella insurance became a really cheap option.

Remember an umbrella does not stop at $1mm. The options are limited only by you money at risk and budget.