I feel like I'm piling on @Anonymous_, but a spousal LLC that holds rental property likely isn't a "business entity" for tax purposes, and likely can (protectively) elect out of the partnership regime under 761(a) or (f). So, yes, in some cases multimember LLCs can be disregarded as entities, which is like being a disregarded entity under the usual rules, and you can preserve 121 eligibility for any subsequent sale (which is important).
Whether you need the LLC protections in addition to insurance is a more a matter of taste. I don't think it's unreasonable to seek additional liability protection, but it's not as easy as holding the property as-is.
