Expert: Tim Norris - 2/1/2009

Question
QUESTION: I purchased a home recently through an LLC I opened because I was told it would be best for asset protection.  I planned on living in the home and paying rent to the LLC.  The LLC would have landlord insurance and I as the tenant would have renters insurance.  The problem is that I cannot find anyone to insure the home.  If I ask for landlord insurance / dwelling insurance, they either require that I already have a homeowners policy with them (not possible since this is soon to be my only home) or they will only issue it under my personal name (which kind of defeats the purpose of liability protection).  Some places tell me I need to contact their business division which says since I am not running a business from the house, that won't work and I should talk to the homeowners division which then says they won't insure a home owned by an LLC.  Can you tell me, given my situation, exactly what type of insurance I am looking for and what company may actually offer this?  Currently, I have the home under a standard homeowners policy in my personal name but the home is actually vacant as I am working on selling my other home which probably means it actually isn't even covered.

ANSWER: Since the property is currently vacant, I would suggest a vacant property/liability policy through American Modern, Foremost, or a few other carriers.  Once you move, a homeowner's policy may be, in fact, the most appropriate.  It shouldn't be as difficult as you have experienced.  "My" home is in my wife's trust and the first named insured is the trust.  We  did initially get some push back from a couple carriers, but were able to convince them that how the home was titled did not change the risk.  Worst case, keep the homeowner's policy in your name, but add the LLC as a an additional insured AND a loss payee.  Though I am not an attorney, as an insurance agent, I am comfortable in advising you that insuring it accordingly should not un-do the asset protection strategy.  However, as an alternative, I know 2 or 3 carriers that will insure under a landlord form, with you as the tenant of the LLC.  Bear in mind, however, you should secure renter's insurance to protect your personal property and liability.  Hope this helps...

Tim Norris
http://www.nreinsurance.com
tim@nreinsurance.com

---------- FOLLOW-UP ----------

QUESTION: Thank you for the phenomenal answer.  It is nice to speak with an insurance professional that finally understands what I am doing (most do not).  If you don't mind, I want to ask a few follow-ups just to clear some things up.

First, excellent idea regarding the vacant home insurance.  While my current carrier, SafeCo, will still insure against everything (except vandalism) if the property is vacant, it makes more sense to get a specific vacant home policy.

With SafeCo, I previously had my LLC as a second named insured (not a loss payee) with the understanding that the second named insured (the LLC) had no liability protection.  However, the underwriter caught on and removed the LLC stating that he viewed myself and my business to be one in the same because I was (planned) on living in the house and the business was owned only by me.  So now, only I am currently listed.  This has always scared me knowing that since the deed is under the LLC, they may try to weasel out of paying a claim.  If I stayed with them, I had planned on getting it in writing that they would still cover the house even though the policy was in my name but the deed was in the business name.  I don't know if this is true but I was told by one company that you cannot insure another person's house only the deed holder can insure it.

Even if they left my business as second named insured and were willing to add them as a loss payee, I always worried what happens if someone fell and hurt themselves on the property?  Since the deed is under the name of the LLC, I figured the LLC would get sued (protecting my other assets).  However, if my HO specifically excluded the second named insured from liability protection (which SafeCo did), I would have to still purchase some sort of business general liability policy to protect the business from suit.

If I went with one renters policy under my personal name and one landlord policy under the LLC, I would have liability for each entity under each policy separately and it seems I would have the most complete coverage this way.

If by miracle, I could get a standard home owners insurance policy issued under the name of the LLC with me as second named insured and loss payee but only with LLC liability protection, wouldn't it then be smart to get a personal liability policy under my own name?

Are the 2 or 3 carriers you mentioned that would allow a landlord policy in the name of an LLC the two you mentioned above?  What I had thought about doing was going with one carrier for the landlord policy (ideally under my LLC if I can find one that will allow this) and then another carrier for the renters policy so the two carriers would not know the owner of the business was also the renter since some carriers may have a problem with this (I know SafeCo did which is why they would not offer me one landlord policy and one renters policy).

Thank you so much!

Answer
QUESTION: Thank you for the phenomenal answer.  It is nice to speak with an insurance professional that finally understands what I am doing (most do not).  If you don't mind, I want to ask a few follow-ups just to clear some things up.

First, excellent idea regarding the vacant home insurance.  While my current carrier, SafeCo, will still insure against everything (except vandalism) if the property is vacant, it makes more sense to get a specific vacant home policy.

With SafeCo, I previously had my LLC as a second named insured (not a loss payee) with the understanding that the second named insured (the LLC) had no liability protection.  However, the underwriter caught on and removed the LLC stating that he viewed myself and my business to be one in the same because I was (planned) on living in the house and the business was owned only by me.  So now, only I am currently listed.  This has always scared me knowing that since the deed is under the LLC, they may try to weasel out of paying a claim.

Some of these underwriters tend to "over think"...the risk is the risk, especially if the LLC was only formed to protect the home as an asset.  (If it were an LLC set up for another business, the concern may be valid, as the other business brings another exposure to the scenario).

  If I stayed with them, I had planned on getting it in writing that they would still cover the house even though the policy was in my name but the deed was in the business name.  I don't know if this is true but I was told by one company that you cannot insure another person's house only the deed holder can insure it.

In actuality, it is about "insurable interest".  Even though holding the deed/title is the most relative factor in such insurable interest, different real estate deals, depending on how a contract to purchase is written, may dictate that another party has the insurance (relative to the contract, of course).  I can think of 2 or 3 situations where this applies...

Even if they left my business as second named insured and were willing to add them as a loss payee, I always worried what happens if someone fell and hurt themselves on the property?  Since the deed is under the name of the LLC, I figured the LLC would get sued (protecting my other assets).  However, if my HO specifically excluded the second named insured from liability protection (which SafeCo did), I would have to still purchase some sort of business general liability policy to protect the business from suit.

Every party will get sued, you just need to make sure every party garners the liability protection.  

Don't think the LLC insulates you from legal action, it insulates what you have from attachment (my non-legal explanation)...

If I went with one renters policy under my personal name and one landlord policy under the LLC, I would have liability for each entity under each policy separately and it seems I would have the most complete coverage this way.

Sounds about right...I still think a homeowners policy makes the most sense (once you occupy it), though.

If by miracle, I could get a standard home owners insurance policy issued under the name of the LLC with me as second named insured and loss payee but only with LLC liability protection, wouldn't it then be smart to get a personal liability policy under my own name?

Are the 2 or 3 carriers you mentioned that would allow a landlord policy in the name of an LLC the two you mentioned above?

Yes...

What I had thought about doing was going with one carrier for the landlord policy (ideally under my LLC if I can find one that will allow this) and then another carrier for the renters policy so the two carriers would not know the owner of the business was also the renter since some carriers may have a problem with this (I know SafeCo did which is why they would not offer me one landlord policy and one renters policy).

Don't over think it (like the underwriter)!

Thank you so much!

You are welcome...

Tim