Liability insurance

Liability insurance
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<br />We own a few rental properties in Michigan and have notes on each of them.
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<br />Currently we carry 1.5 million of liability coverage on each property 500K base, plus a 1 million dollar umbrella. We would like to put the properties into each of their own LLC and drop the umbrella policy, but the lender won allow us to do so.
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<br />So, what are your opinions on how much liability coverage is appropriate? Are we over protected with 1.5 million? The bad economy is really taking a toll on our cash flow and we looking for ways to cut costs. Dropping that umbrella policy would save a good chunk of change, but at the same time I don want to open ourselves to a risk.
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<br />I been told by a couple different people that you can only be held liable above and beyond your liability coverage to the extent of the equity in the home. Thanks to this economy there next to none in these properties. :roll:
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<br />I don know if you got really screwy insurance rules in MI, or what your net worth is, but reading your post you are WAY OVERINSURED. An umbrella means that your various loss exposures are all put under the same umbrella, not that you need a separate umbrella over each exposure.
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<br />Unless you also have an umbrella over each of your vehicles and boats, I say you UNDERinsured.
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<br />Look at your net worth, assets minus liabilities, that how much liabilitiy insurance you need. I found that most LLCs that I looked at have been a revenue generator for an attorney rather than effective protection for the landlord.
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<br />I never had an LLC for any of my properties, 16 SFHs at one time. I had a one million dollar umbrella since my net worth went over $500K and a two million policy for the last five years.
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<br />I would keep the umbrella. Why?
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<br />It is inexpensive AND provides prima facia proof you are not trying to structure your finances to make yourself judgment proof should your tenants or their guests be injured and you are held liable.
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<br />Others may have a different opinion but $300 a year is protecting far more than just the equity you outlined above.
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<br />I been told by a couple different people that you can only be held liable above and beyond your liability coverage to the extent of the equity in the home.
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<br />I don know who told you that but it is absolutely not true. If you are deemed personally liable then all of your assets are at risk without adequate insurance.
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<br />Mutual Funds
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<br />IRAs in some cases
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<br />401k depending on the circumstancesYour wife china, crystal and silver
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<br />Sure, you could declare bankruptcy, maybe, but you would still lose much of what you have to settle the judgment and any other debts.
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<br />If your net worth is around $100K, then I think you over insured with 1.5 million worth of insurance. My opinion is that you don bet against yourself. Could you get sued? Yes. Could someone actually win a lawsuit against you? Again, yes. What percentage of lawsuits in the rental business would have judgements over $500K? Very few.
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<br />I use a layered asset protection program. My properties are divided into different LLCs according to risk. We have a company policy to aggressively fight all lawsuits! Of course, I have insurance with a high deductable as the last line of defense. The point is to make it very difficult for people to sue you and actually get the money.