I hear it all the time. In fact this last week. I've heard it twice from clients first phrase. Oh
All I need is an LLC then I don't have to buy insurance or even better yet from my California clients
I'm just gonna get insurance because I don't want to pay those excessive fees. So I don't need to have an LLC
I'll just get insurance. Which ones right are these myths are they facts? What do I do? Let's break it down
There are so many urban legends and myths out there misinformation
I don't know where to start but I'm just gonna try to make the best list
I can let's start with umbrella insurance. So many people think umbrella insurance is all I need and I'm good
Hey umbrella insurance is great. And what it does is cover the excess claims that could happen
After your regular insurance doesn't pay out
Due to policy limits or exclusions and then you get umbrella policies to fill in the gaps or the excess umbrella insurance is great
But you don't get it and that's all it
Really is on top of a landlord policy if your landlord or a general liability policy if you're a business owner
You just don't get umbrella insurance and think you're done and I know in, California
You don't want to spend the 800 bucks for it LLC. And so you're just going to get an umbrella policy
Guys, it doesn't cut it. Yeah, the umbrella policy comes in after your regular insurance. And then you start adding up umbrella
Insurance premiums and is it worth it? And should I just have an LLC?
so think twice about just hanging your hat on umbrella policies as your only insurance so that you can avoid
Getting an LLC or a corporation
Next a common fallacy is either or that I can do an LLC or insurance, but I don't have to do both now
This is complicated. Let me make this point first. So I hear it all the time
I got an LLC so I don't need insurance. I just heard that this last week
Guys, the goal of an LLC is to protect you if there's a lawsuit, but what does a plaintiff attorney going to do?
They're going to try and pierce the veil of the LLC and show that you were negligent or reckless or grossly negligent
Nerve just careless or all these different
Terms and they're gonna try to pierce the veil because you didn't protect it and all you had was one sheet of paper from some
online
Incorporation sites, so they pierce the veil and that happens. You need to maintain and treat it like a regular business
Do your annual maintenance?
I got a plan for that if you need it
But the point is the LLC is more than just one sheet of paper and it can be found negligent
That you didn't carry insurance
That's right. Let me be clear about that. So you have an LLC. Oh, I don't need insurance. Well me as a plaintiff attorney
I could sue you and go. Hey, you had an LLC and it was negligent you were careless for not even having insurance
So I'm gonna pierce the veil and come after you that happens. So you have to at least have some base policy
so if you're a
Landlord and you have rental property you're going to have a landlord policy and if you're a business owner
You might have a general liability insurance policy and that works hand in glove with your LLC
because again, oh
Doesn't the other argument right the better one. Oh, I just need insurance
I don't need an LLC
Well, does your insurance company always rush to your side? Oh, let me pay that claim
No, they have exclusions - they're not gonna cover mold. They're not gonna cover asbestos
they're not gonna cover some latent method situation or you were
Negligent yourself. So we're only gonna pay so much and then we have policy limits for this and policy limits for that
no, we don't cover an act of God like an earthquake or this and you didn't have
water
Flood insurance or you didn't have right insurance?
Companies don't pay out everything every time
so if you're gonna hang your hat on an insurance policy and no LLC and your insurance
Policy doesn't pay out you want to have a fail-safe you want to be able to say no
I got my LLC, so see they work hand in glove
The LLC can protect you and then you have an insurance policy
Behind it or you have an insurance policy and the LLC behind it. So you're using them both together next myth. Oh I can
get a homeowner's policy for my rental property and I don't have to get a landlord policy because the
Homeowners policy is cheaper
well
This is a common mistake of landlords is they look for the cheapest insurance?
Possible. Now while you're probably watching this video is you need an LLC for rental code? That's where we mostly use
LLC's is for rental property
If you have an operational business
We're going to be making an S election to become an S corporation watch my other videos on that
But you're looking at an LLC probably because you have rental property
And so when you have a rental property
You're gonna think you can get a standard homeowners insurance policy which are pretty cheap for your own home
but when you have
Tenants and you have a rental property. You're right
The insurance company's going to charge more and you have to get the landlord policy
So remember you want the landlord policy and who is the additional insured?
It's the LLC
so you might get the policy in the name of the LLC because it's on title to your rental and then you that owns the
landlord policy or you get a landlord policy and name the LLC is
Additionally insured you can get the policy first in the LLC later you get the LLC first and get the policy later
But you again you want the hand and glove and make sure you get the right
insurance
versus the wrong insurance with the LLC working in concert
So it all comes together number four and finally cost benefit analysis
Believe it or not combining a good LLC with the right type of insurance can actually save you money
Some people go down the LLC route and they'll pay for an LLC in another state with exorbitant fees
be careful of the Nevada's dam and and
Who's setting it up in Wyoming or somewhere when you don't even have real estate to justify that watch some of my other videos will
Read my articles on that watch out for that sales pitch
But you overpay for more LLC than you need and then I have other people again that will go out and buy more insurance
Than they need to avoid an LLC
Hey
Here's the easy solution
Set up the LLC and the state where you have the rental property don't overdo it and then get the basic home owners
Landlord policy or business liability policy with a commercial umbrella that way you're getting the most affordable insurance
Not overdoing it with the right type of LLC and the state where you're doing business
Now when you've got two or three million dollars worth of real estate
Hey
I'm
Throwdown and we're gonna get a little more complex and have multi entity
Structuring to better protect your assets when you're a brand new investor a brand new
Business owner and only three or four rental properties don't overdo it. There's a lot of scams out there
Anyway, our law firm helps clients in all 50 states set up the right entity with all the pieces and parts
not that one sheet of paper and it can be as low as
800 bucks just to talk to a lawyer for at least an hour and get it done, right?
This is not a promo video or a sales pitch video many of you that watch my videos
I normally don't go into this phraseology
But I want to I want to protect you and I want you to get the right entity and going online and just click click
Click and setting up the wrong entity can cost you thousands if not thousands of dollars to so when you're debating
Insurance in an LLC. You can actually do it right with a good consultation to bring it together
Keep your cost down set up the right entity and the right state with the right type of insurance
Thanks so much for watching that video and I want to be your source for tax and legal strategies
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