With lawsuits and settlements increasing and tax laws regularly changing, some homeowners may look for ways to protect personal assets by placing their home in either a limited liability corporation (LLC) or a trust. When this happens, the legal structure of the arrangement creates some nuanced insurance considerations. Thankfully, taking care of these insurance considerations is fairly straightforward if you work with a knowledgeable NH homeowners insurance agent. Here are some things to consider if your NH home is placed into an LLC or trust.
If My Home is in an LLC or Trust, How Can I Insure It With Homeowners Insurance?
A few considerations that should be taken into account when deciding how to insure a New Hampshire home that’s in an LLC/trust. For the purposes of these examples, assume that you’re close to the trust (e.g., a beneficial owner) and live on the property. An insurance agent who specializes in homeowners' policies will be able to guide you through the actual considerations of your situation.
Option 1: Include the Entity as an “Additional Insured”
The simplest way to insure a home that’s within an LLC/trust is usually to list the entity as an “additional insured” on your current policy. With this solution, you maintain your current policy with just the trust added additional insured. This may extend coverage to the trust without changing the protections in place, but not every insurance company is willing to make this accommodation.
As is the case with all of these solutions, this option has both advantages and disadvantages. The biggest advantage is the option’s simplicity, as there’s no need for the trust to get its own policy, and only one policy is needed.
Disadvantages include the lack of separation between you and the trust on the insurance policy and the potentially lower liability limits that a single policy can provide. Having multiple parties on the same insurance policy is fairly common in certain situations, but it may raise questions if the validity of your trust is ever investigated.
To address the potentially lower liability limit for both you and the LLC, you should consider working with an agent that has access to a personal umbrella company willing also to add a trust onto an umbrella policy.
Option 2: Purchase Homeowners Insurance for the Trust
Alternatively, you may be able to purchase homeowners insurance and list the LCC/trust as the “named insured.” The named insured is the primary beneficiary of a policy, and it’s usually the entity that receives any claim payments. In common parlance, the named insured is typically thought of as the owner of a policy.
If the trust purchases a homeowners policy on its own, the policy's protections will not likely extend to your personal property or personal liability risks, even if within the home insured. This is because the trust does not own the belongings; you do.
To protect your personal property and guard against personal liability risk in this situation, you can purchase renters insurance. Renter's policies can provide both personal property coverage and personal liability coverage, and are often very affordable.
The advantages of this solution are twofold. First, the clear distinction between the trust’s insurance policy and your insurance policy is consistent with the legal structure of an LLC/trust. Second, the total liability coverage provided may be higher because two policies are offering coverage. Each policy will typically only cover it's named insured, however.
The biggest disadvantage of this solution is the added complexity of purchasing another insurance policy. Purchasing multiple policies isn’t difficult if you have an agent’s help, though.
What if I Can't Find a NH Home Insurance Company that Will Write the Policy in the Name of an LLC?
This is a real issue as most home insurance companies will not write a personal policy if deeded in the name of a business, such as an LLC. Fortunately, some carriers realize that an LLC may be a tool for individuals not necessarily tied to business activity. HPM Insurance has access to a company that will add coverage onto a homeowners policy; however certain stipulations apply, such as:
- LLC is the sole owner of the dwelling and only used as a private residence
- There is no business activity on than an occasional rental of the home
- The LLC members are actual people (and not a trust, corporation, or other business entity).
Other conditions may apply, so speak with your agent about the details.
A critical point is that you must tell the insurance company should legal ownership change. If the home is re-deeded into an LLC, but you don't update the insurance, you would most likely have a coverage issue should a claim occur. Insurance fundamentals require ownership and insurance match as you can not insure something you don't actually own.
Option 3: Purchase Commercial Insurance for the Trust
If your home isn’t just a residence but is also used for commercial purposes, a commercial policy might be in order. Some homeowner's policies will cover basic business risks (such as a home office), but their protections are limited in scope and vary.
Should you need a more extensive commercial insurance solution for business operations on the premises, talk to your insurance professional.
What if I Have a NH Personal Umbrella Policy?
As a personal umbrella typically provides an additional layer of liability protection over home and auto insurance, it is critical that the personal umbrella also reflect the LLC or trust. Again, not all insurance companies are willing to do this, so be sure to flush out all the facts of your situation with an insurance professional.
Work With a New Hampshire Insurance Agent
If you need help insuring a New Hampshire home that’s held by an LLC or trust, contact the independent insurance agents of HPM Insurance. Our agents can work with you to evaluate the best solution for your situation and then provide quotes for a homeowner's program to meet your needs.