Rental Property LLC vs. Umbrella Insurance
Rental property LLC vs. umbrella insurance is a common debate among property owners who rent their properties to tenants.3 min read
Rental property LLC vs. umbrella insurance is a common debate among property owners who rent their properties to tenants. Deciding whether to offer umbrella insurance or set up a limited liability company (LLC) to manage the property is an important step in the property management process.
LLC vs. Umbrella Policy
When you obtain an umbrella insurance policy, the coverage extends beyond the standard limitations on a property. It includes additional coverage that you wouldn't get with traditional property insurance policy.
Require Renters Insurance
As a property owner, you may choose to require your tenants to carry renters insurance. This helps to add a layer of protection between you, the owner and the tenant renting your property.
Advantages of an LLC
One of the main reasons real estate investors choose to form an LLC is for the limited liability protection. Another benefit is remaining anonymous to the tenants. With an LLC, tenants will make payments to the business, rather than sending anything to your home address. Having an LLC manage the property will also remove you as the property owner, hiding your ownership.
Issues and Factors
Setting up an LLC does come with some required fees and costs. An umbrella insurance policy will be paid on a monthly basis. For example, you might choose a policy that costs $100 per month and offers $1 million in umbrella protection. The cost for that policy annually would be $1,200.
An insurance policy comes with a number of benefits, including company-appointed lawyers who will defend the policyholders and protect the company from having to pay out on a number of claims. However, insurance policies also have exclusions to the coverage, which can put the responsibility on the property owner for any liability that occurs on the property.