For instance, you have an insurance policy that covers up to $1 million in liability, but someone sues you and wins a judgment for $1.3 million. 

Obviously, there is a lot that will need to be accounted for to make sure I don't get in over my head, but what hoops would I have to jump through to get these "players" to agree to such a deal without a successful track record or cash of my own?

The reason I consider doing a lease option is because the couple that live in my house right now are reallllly sweet and take good care of the house and want to own a house in my area and start their family, so I thought it could be a win win for both of us. 

Persist and you will WIN!!

the greatest book I ever read was the one I put down and went and found a deal-that book was how to win friends and influence people before that book I had read everything I could on the deals and the ways and the thiss and the that'sone Saturday I told myself I am going to look at and make a offer on a house and I did- I didn't get it or was able to buy the first six I made offers on but that is were my confidence came into place- I was learning how to make deals- that you cannot learn from a book-I hope this finds you with great confidence you will find the deal you will be successful it is a great journey enjoy it

Win/Win.  

Win win for both parties.

So about a month ago, we sent notices to renew our tenants leases, we received a reply from one of our tenants(married couple, great quiet tenants, always pay on time), she said that her and her husband were strugglin...

You're handcuffing yourself by only having a plan in place for 5 mortgages and $1000...then saying, "Once I hit $1,000/m within my five house/mortgage limit I will review and decide how to proceed next.".Also, you don't win by "taking" what a market offers.  

just talk to the tenant and see if there is a viable solution before you out of pocket cashall problems have a solution with good negotiation  both parties can have a win winenjoy