It's just a good idea for them, but for me, its contractual stipulation protects me from any claim from my tenant in event I'm sued for losses from some catastrophic or other events that causes tenant losses. 

My insurance broker has not minced any words on what's happening in their industry; coverage is focusing on paying claims for catastrophic events only.So the good news: "it's over." 

You can also consider a higher deductible if you want to save premiums and use insurance for more catastrophic losses.  

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

If you have a $50K slush fund that is ready to be deployed, you can sleep at night.We have a rule that we keep $50K sitting in an interest bearing account for catastrophes, which can and do come up. 

And indeed while April was catastrophic, May was even worse.According to the latest remittance data by Trepp, the surge in CMBS delinquencies that most industry watchers were anticipating came through in May.

I am trying to protect against an accident for a guest, and a major catastrophic event (like accidental fire from a guest) thanks!

That's why multi family space is so crowded as you are diversifying your occupancy with multiple tenants..Most of the investors who consider this route already have high paying jobs or business that can handle a catastrophe 

The bank doesn't want to loan on a property if 1/3 of your tenants are facing bankruptcy or closure or some other catastrophe.

If it is an outside liability claim (like someone suing you because your son killed someone with your car in a crash), if the LLC is set up in a proper jurisdiction with charging order as sole remedy (or your LLC is owned by a holding LLC in such jurisdiction), then the plaintiff would not be able to reach into the LLC asset.You can combine both by having the property owned by a land trust where the beneficial owner is an LLC.Using asset protection structures can be very efficient in protecting your assets from catastrophic lawsuit by limiting the risk to only part of it.