Whether you own one or ten properties, forming a separate LLC (limited liability company) for each of them should be something you consider in your business structure.
The main advantage of having your properties under individual LLCs lies in the separation of your personal assets from those belonging to the LLC (essentially a separate entity).
This way, should a tenant or a third party sue you as a property owner, your personal assets are untouchable and cannot be used to compensate the tenant in the event you lose the case.
Whether your properties are already under LLCs or you’re in the process, you will need insurance coverage and asset protection for each of them. It's essential to insure properties and secure your future.
Here is everything you need to know about getting insurance for an LLC.
What’s Covered by Insurance on LLC Rental Property?
General and Professional Coverage - Rental Property Insurance
Your basic LLC rental property insurance is going to cover the most important liability-related aspects of operating your business.
They include two standard coverage types: general and professional.
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General liability coverage is directed toward any lawsuits that may arise in connection with personal injuries or property damage associated with your business.
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Professional liability coverage protects your business from any professional mistakes you make as the business owner.
You may also want to consider insurance add-ons, such as commercial auto insurance (protects the vehicles used by your business), property insurance (protects your actual rental property and your professional office if you have one), and/or rent default insurance (ensures you receive a monthly rent payment if your tenant defaults).
How Much Is It?
The costs for every LLC are calculated individually based on a number of factors; size, location, and condition of your property.
Other factors considered may include your past experiences as a property owner, the age of your LLC, and the number of add-ons you’re getting with the general and professional coverage.
For the sake of providing actual numbers, some businesses pay as little as $200 per year while others pay $5000.
LLC vs Umbrella Policy - Landlord Insurance
You may have heard that an umbrella policy is something to consider, maybe from insurance providers. There are several factors to consider.
Umbrella policies are often less expensive than an LLC and they can cover multiple properties throughout different states, whereas an LLC is by state only.
The downside is there is no separation with personal and business assets under an umbrella policy and there is often a large deductible associated.
An LLC essentially separates you personally from the business. So, if a tenant fell down the stairs and sued, the LLC would be held liable but your personal assets would be protected.
On the other hand, say your new tenant complained of a loose floorboard on the stairs. You nail it down, but it comes loose causing the tenant to trip and fall, injuring themselves.
One would think that your LLC protects you personally, but because you were the one to fix the floorboard, not as a worker for the business, you can be held liable.
Your tenant could sue you and your LLC. This is where an umbrella insurance policy would be beneficial.
It's worth noting an umbrella insurance policy is having coverage in excess to other policies you already have.
It can sometimes be the primary insurance when losses aren’t covered under other policies.
However, it’s important to remember that an umbrella policy leaves you intertwined with your business.
One of the major benefits of having an LLC is that you can have one for each property you own meaning your personal assets and the assets of each property are separate.
In short, in the event that you would get sued, having an LLC ensures the assets from only one property would be liable.
Don’t Forget Rent Default Insurance
Whether you choose to create one LLC or multiple LLCs to cover each property, one thing is clear: your cash flow is still going to remain vulnerable to tenants unwilling or unable to pay rent.
The responsibility of protecting your property’s assets, your personal assets, worker's compensation, and homeowner’s insurance, makes it easy to overlook the possibility of a tenant defaulting on rent.
With Steady, you can mitigate this risk if an incident occurs and still get your monthly rental income even if your tenant defaults on their payments.
That's the power of rent default insurance and puts the power back in property owners hands.
Steady allows you to customize your coverage based on need. You can protect the rent of one property or a thousand for 6 weeks or 6 months.
Steady is more than just insurance, it’s peace of mind and an informed decision for your personal finances.