This article was posted on Sunday, Feb 01, 2015

“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?  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 listed below.

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… 

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  • 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 and is reprinted here with permission from Creative Real Estate Online at