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Real Estate Investors: 13 Items Your Insurance Won’t Cover

“My lawyer told me umbrella insurance is enough to protect me,
so I don’t need an LLC.”

~ An ill-advised Real Estate Investor

 With lawyers like the above, who needs enemies?

masked thief

Liability insurance does not protect you from legal disputes with tenants, contractors, partners and others.

You should absolutely have liability insurance. But insurance doesn’t protect you from legal disputes with tenants, contractors, partners (including family members), and others as follows:

Disputes with tenants over…

  • Rent increases – Which have lead to massive costly lawsuits, especially with multi-unit property
  • Fair Housing violations – Which can result in substantial judgments
  • Past due rents, evictions – More liability
  • Other problems leading to legal actions

Disputes with contractors over…

  • Work performed (or not performed or poorly performed)
  • Materials used (or not used)
  • Hidden fees – You do not want to pay

These disputes can result in mechanics liens.

Disputes with partners (Including family members) over…

  • Profit splitting – Who gets what?
  • Duties – who does what?
  • Management – who decides?

These are heated battles where only lawyers win.

Disputes with Others…

  • Vendors/suppliers
  • Real estate agents
  • Management companies
  • Title companies

Anyone in real estate you deal with is a potential dispute.

Besides leading to costly lawsuits, there is the time and stress with the above disputes. Moreover, insurance does not pay you for attorney fees and court costs related to these uninsured legal actions.

Insurance also does NOT…

  • Protect you from liability claims that exceed limits, even high umbrella limits
  • Protect you from claims that the insurance company says are not covered (that you thought were covered)
  • Protect you from environmental liabilities
  • PREVENT lawsuits from ever happening
  • And too much insurance may even invite lawsuits!

Unlike a properly structured and documented LLC, insurance does NOT…

  • Give you financial privacy (the cornerstone of asset protection and lawsuit prevention)
  • Defend you in a costly audit against the most powerful predator-creditor: The IRS
  • Support tax-saving strategies (which can amount to thousands of dollars)

RECAP of what insurance does not cover:

_Tenant disputes

_Fair Housing violations

_Contractor disputes

_Partner/family disputes

_Other disputes

_Related legal fees for the above

_Claims that exceed limits

_Claims insurance company says are not covered

_Environmental liabilities

_Lawsuit prevention

_Financial privacy

_IRS audit defense

_Supporting tax strategies

That’s 13 items insurance does not cover. On the other hand, a properly structured LLC and asset protection plan can give you all of the aforementioned protection-benefits, which can amount to thousands of dollars and peace of mind.

This article is an excerpt from The LLC Master Machine Asset Protection System  (with extraordinary protection strategies) by Al Aiello, CPA, MST and William Noll, CPA, Attorney.

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About the Author...

Al Aiello, CPA, MS Taxation, Real Estate Investor is a National Speaker and foremost expert on Wealth Protection for Real Estate Investors. The LLC Master Machine is the asset protection system he designed specifically for real estate investors. For more information about this money-saving system go here.

Comments

  1. Terri says:

    How does an LLC protect you from past due rents?

    • Al Aiello says:

      Hello.

      This is more of the role of competent and diligent property management. However, the Operating Agreement Extraordinaire of my Master Machine Asset Protection System has provisions for such property management.

      Plus, the structure of this system is designed to prevent tenant disputes which can lead to costly lawsuits. Therefore, a properly structured LLC can help here.

      Sincerely, AL Aiello

  2. manjunath says:

    Hi,

    If I buy real estate with Lease Options and assign these options to the tenant-buyer, does this LLC structure helps me in deterring any lawsuits arising from buyer/seller disputes? are there any insurance providers who cover real estate investors? all prepaid legal plans like AARP are telling investments are not covered at all.

    Appreciate your feedback!

    Thx!
    M

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