In this video Mark J. Kohler addresses common misconceptions that investors and small business owners have about the relationship between limited liability companies (LLCs) and insurance. He explains that an LLC does not replace the need for insurance and that umbrella policies alone are insufficient without underlying liability coverage. Kohler outlines how LLCs protect against lawsuits but can be vulnerable to veil‑piercing if the entity is not properly maintained, and how insurers have exclusions that can leave owners exposed. He details the correct insurance types for landlords (landlord policies) versus business owners (general liability) and stresses the importance of naming the LLC as an additional insured. The video also covers cost‑benefit considerations, warning against out‑of‑state LLC scams and over‑buying insurance, and recommends a balanced approach: set up the LLC in the state where the property resides, obtain appropriate base policies, and add a commercial umbrella for excess coverage. Kohler tailors advice for new investors with a few properties versus high‑net‑worth owners who may need multi‑entity structures. He concludes with a call to action to use his firm’s services for proper entity formation and insurance planning, and invites viewers to subscribe to his newsletter and channel for ongoing tax and legal strategies.
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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 going to 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 one's 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 going to 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 you're a 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 an LLC, and so you're just going to get an umbrella policy. Guys, it doesn't cut it. 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 is 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 or just careless or all these different terms. And they're going to try to pierce the veil because you didn't protect it and all you had was one sheet of paper from some Online incorporation site. So they pierce the veil. And that happens. You need to maintain it, 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, so I'm going to 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 then 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 too. They're not going to cover mold, they're not going to cover asbestos, they're not going to cover some latent meth situation or you were negligent yourself. So we're only going to 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 going to 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 in the LLC behind it. So you're using them both together. Next myth. Oh, I can get a homeowners 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, what you're probably watching this video is you need an LLC for rental property. That's where we mostly use LLCs, 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 rental property, you're going to think you can get a standard homeowner's 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 is 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? 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 and the LLC later. You get the LLC first and get the policy later. But again, you want the hand in 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 will go down the LLC route and they'll pay for an LLC in another state with exorbitant fees. Be careful of the Nevada scam and setting it up in Wyoming or somewhere when you don't even have real estate to justify that. Watch some of my other videos or 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 in the state where you have the rental property. Don't overdo it. And then get the basic homeowners 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 going to throw down. We're going to get a little more complex and have multi entity structuring to better protect your assets. But 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 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 hundreds if not thousands of dollars too. So when you're debating insurance in an llc, you 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. It's hard enough to live the American dream without being out on the web on Google, trying to find answers to complex questions and just clicking a mouse, hoping you got it right. My team and I want to be a huge resource to your the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands. Now click here if you want to be a part of my newsletter. It's awesome. Weekly updates and deadlines and strategies and tips. Also subscribe to my YouTube channel. You'll love it. And make sure to click the bell icon so you get a little ping whenever there's a new video. And finally, check out my site marjolkohler.com with all sorts of videos, probably 70 plus videos, 30 plus hours of content that'll save you thousands of.
