Insurance And LLC's
I am buying a 3 unit investment property in my name. I plan on quitclaiming the property to an LLC about 2 weeks after I purchase the property. When I initially purchase the property, I have to write the insurance policy in my name, since the mortgage is in my name. When I quit claim the property to the LLC, I will be changing the name on the insurance policy to the name of the LLC. Will the bank give me trouble, since my insurance company will notify the bank that the name on the insurance policy has been switched from my name to an LLC? I am getting a regular Fannie/Freddy loan.
I am about to do the same thing. It did not seem to be a problem with the lender. However my insurance agent said the insurer would not cover liability if it was in an llc so I had to buy a separate policy. Talk to your agent if you need to have both your name and the llc as the loss payee on the policy.
I realize this article addresses "subject-to", but there are some points that may help you both:
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=472
Best regards,
Tim
Hey norrist/Tim -I know you say to put your entity as first insured I'm still not sure of the www.wording.I use the last name of my seller as the name of my land trust- would it then read --"Smith family trust,xyz as trustee."on the first insured line of the policy?
Hey Joeyd,
The wording of the first named insured should simply match the wording of the owner.
For instance, if the "Smith Family Trust" owns the property, than the Smith Family Trust should be the first named insured.
Frankly, you may find difficulty in finding an Agent that understands this,but stick to your guns...
bill2004,
I am experiencing the same response that jdipie found. My insurance broker told me that it is difficult to get properties insured that are in corporations. The reason is that there is concern that if another business is purchased and placed in the corporation, there my be a liability claim from the business that will spill over into the other assets of the corporation, i.e. the property.
Apparently, it is not as difficult to get insurance on properties in a trust. My agent told me that most of his clients are using umbrella policies rather than corporate structures for asset protection. Some of these clients have over 40 properties.
norrist,
This was the reason that my insurance broker was given by the insurance companies. I told him that corporate ownership to contain the scope of targets from liability attacks should reduce the amounts paid since it may discourage some attorneys if their contingency fees are limited. He said that the issue is getting more visibility in the insurance industry.
Getting insurance shouldn't be a problem. I just call my insurance guy with the property and any info that he needs and voila. I have them in my LLC and have never had an issue. He knows what I do an tells me to have my tenants get renters insurance.
Hi Ed,
I think your broker may need to locate a few more carriers, especially ones that seem to be more investor savvy. It will probably help him and you.
Tim
Hi, Tim
He has a pretty substantial stable of insurance companies. When I spoke with him we were trying to figure out why there was difficulty. I suspect that he only contacted one (probably Farmer's) who gave the response that I posted.
He also told me that the number of investors interested in placing properties in corporations is growing and that there is an effort being made so that these properties can be reasonably insured.
Regards,
Ed
Hi Ed,
It sounded like he may have only talked to one. Sometimes the terms "insurer" and "common sense" just don't seem to mix. The risk is inherently the same regardless of what type of entity owns it. In other words, the chance of a fire or liability claim doesn't change based upon the entity that owns the property...
No worries, sounds like he's doing the job for you. Best regards for a safe holiday season (I guess Halloween counts...)
Thanks, Tim
I agree completely that liability risk should not depend on the form of ownership. Rational thinking does not seem to prevail here. In fact I would think that having a property in a corporation would discourage attorneys armed with contingency agreements when compared to the discovery of a fat umbrella policy. One would think that this would help the insurance companies.
Happy Holidays to you as well and regards,
Ed
I think sometimes the translation from carrier via management to underwriting, then to the sales force gets somehow skewed..go figure!
Take care,
Tim