umbrella insurance for landlords
I have a theory that nobody likes insurance.

Don’t get me wrong, it’s important and often required by law or by lenders. But insurance is just so psychologically unsatisfying.

I don’t know anyone who’s really excited to get their sweet new coverage. At best it gives you peace of mind for a modest price. Even when your policy pays out, it feels less like a huge cash windfall and more like making some awful outcome somewhat less bad.

For landlords, however, insurance takes on a whole new dimension. Not only must you cover your assets to insure against losses from floods, fires, and severe storms, but also from the most unpredictable force on the planet: other people.

Natural disasters and human disasters tend to be unpredictable and extremely costly. We can insure against property damage and legal liabilities, but what happens when a disaster strikes from an unexpected direction or unforeseen source? Or when the damages exceed your policy limits?

That’s where umbrella insurance for rental properties comes into play.

As a landlord, you need to know what this extra layer of protection is, why you need it, and how to find the right coverage to protect your business and personal assets from the unexpected.

 

What Is Umbrella Insurance?

Umbrella insurance is a type of liability insurance intended to supplement your primary insurance policies, such as homeowner’s insurance or landlord insurance. Think of it as an “umbrella” that extends over your existing policies, offering broader coverage and higher limits to shield your assets in the event of a costly lawsuit or catastrophic incident.

Umbrella insurance covers you against liabilities that your other forms of insurance protection can’t or won’t protect you against. Most commonly, this involves covering damages that exceed another insurance policy’s coverage limits.

For example, say you own a rental property covered by a landlord insurance policy with a $500,000 liability limit. If you get sued for $1 million, your landlord insurance only covers half that amount. An umbrella insurance policy would kick in once your primary policy’s limit is exhausted. In this case, umbrella insurance would cover the remaining $500,000 in damages, saving you from a catastrophic financial blow.

 

What Does Umbrella Insurance Cover?

Umbrella insurance provides blanket protection to fill in the gaps in coverage for unusual scenarios not covered by traditional homeowner’s or landlord insurance policies. This might include coverage for:

    • Personal Liability: This covers incidents where you are found personally liable for injuries or damages to others, whether on your rental property or elsewhere.
    • Property Damage Liability: If your rental property causes damage to someone else’s property, such as a fire that spreads to a neighbor’s home, this coverage helps cover the costs.
    • Libel and Slander: If you’re sued for making false statements that harm someone’s reputation, your umbrella insurance can provide protection.
    • Legal Expenses: Even if you’re not at fault, legal defense fees can add up quickly. Umbrella insurance may cover large legal bills not covered by other forms of insurance.

Umbrella insurance does not cover rent defaults. Consider buying rent default insurance to pay the rent when your tenant stops paying and you need to file for eviction and find a new tenant. Check out Steady and The Guarantors as reputable providers.

 

The Value of Umbrella Insurance for Landlords

Landlords have a legal duty to maintain safe living conditions for their tenants. Accidents can happen despite your best efforts, however, and tenants or visitors can incur injuries or damages on your property.

Some people are inclined to come after the landlord and their perceived deep pockets seeking financial compensation. Sometimes they might even have a legitimate claim. If you’re ever found liable for such incidents, you could face significant financial consequences.

Basic landlord insurance may cover your liability in many cases, but these policies have limits based on the nature of the damages and the amount of coverage you’ve paid for. Umbrella insurance helps protect your personal assets, such as your savings, your investments, and even your home, from being seized to pay for damages that exceed your primary insurance policy’s limits. Thus, this extra layer of protection provides additional safeguards for your business, investments, and personal assets.

Some other key features that make umbrella insurance valuable to rental property owners include the following.

 

Broad Protection For Your Assets

Umbrella insurance can provide extra protection on top of other lines of insurance coverage you may have, including not only landlord insurance but also auto insurance and homeowners insurance. This means that if you’re involved in a car accident or a lawsuit related to your home, your umbrella insurance may provide additional coverage or fill in coverage gaps. It can also provide blanket coverage over multiple properties, even across different cities or states.

 

High Coverage Limits

One of the primary advantages of umbrella insurance is the ability to obtain high coverage limits, often in the range of $1 million to $5 million or more. These generous limits offer you substantial protection against catastrophic events or costly legal proceedings.

Umbrella insurance kicks in once your primary insurance policy’s limits are exhausted. For example, if your landlord insurance policy has a liability limit of $500,000, and you have a $1 million umbrella policy, the umbrella policy would provide coverage beyond the $500,000 limit of your landlord insurance.

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Legal Expense Coverage

Legal battles can be protracted and expensive, even if the judgment ultimately goes in your favor. Attorney fees, court costs, and settlements can add up quickly, leaving landlords with substantial financial burdens. Umbrella insurance covers not only the damages awarded in a lawsuit but also the associated legal costs. This coverage can help to ensure that you have the financial resources to mount a robust defense if you find yourself in a legal dispute.

 

Peace of Mind

Owning rental properties should be a source of steady rental income and financial independence, not a constant source of anxiety. Umbrella insurance offers peace of mind in knowing you have a safety net in place to shield your assets from unforeseen events. It allows you to focus on managing your properties and growing your real estate portfolio without having to worry about the potential financial consequences of an accident or lawsuit.

 

Choosing Umbrella Insurance for Rental Properties

Consider the following factors when choosing an umbrella insurance provider and policy.

 

Your Risk Exposure

When considering umbrella insurance as a landlord, assess your overall risk exposure. Consider factors such as the number of rental properties you own, their condition, and the types of tenants you have.

Having more properties in your portfolio, older properties or units in need of repairs, lower-income rental properties, or high-risk tenants may warrant choosing higher umbrella insurance coverage limits.

 

umbrella insurance for rental propertiesYour Primary Insurance Policies

Coordinate your umbrella insurance with your primary policies, such as landlord insurance or homeowner’s insurance. Make sure you know the liability limits and exclusions of your primary policies so you understand when umbrella coverage would kick in. This helps you decide how much coverage you need and helps you fill coverage gaps.

Many insurers offer discounts for customers with multiple policies, so you may be able to bundle your umbrella policy with your current landlord insurance or homeowner’s insurance for substantial savings. Some insurance companies offer you the chance to simply add umbrella insurance to your existing policy for a small fee.

 

Policy Exclusions

Like all insurance policies, umbrella insurance comes with some exclusions. It’s crucial to understand what is and isn’t covered by your policy. Many umbrella policies exclude intentional acts and criminal activities, for example. Because umbrella insurance is a form of liability coverage, it does not cover damage to your property or personal injuries to you as the policyholder. Be sure to discuss these exclusions with insurance providers and consider adding any necessary endorsements or policy riders to fill potential gaps in coverage.

Also note whether a given policy represents a personal umbrella policy, which covers an individual, versus a commercial or business umbrella policy that covers business activities conducted through a limited liability company (LLC).

 

Affordability

Umbrella insurance is generally cost-effective for the level of coverage it offers. The cost of umbrella insurance varies based on factors like the amount of coverage you choose, your location, and your personal history. But usually you can secure substantiation protection against the unforeseen at an affordable rate.

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Quality of the Insurance Provider

Because umbrella insurance policies tend to involve very large numbers when claims arise, it’s vital to select a reputable insurance provider. Look for insurers with a strong financial rating and a history of reliable claims processing. Seek recommendations from fellow landlords or other real estate investors. Always shop around to compare quotes and policy terms from multiple providers to find the best fit for you.

 

Frequently Asked Questions (FAQs)

If you still have questions, we still have answers about umbrella insurance for landlords.

What Does Umbrella Insurance Cost?

A $1 million umbrella policy may run you between $150 and $300 per year, depending on a host of factors specific to your policy and property. In general, more expensive properties in higher-cost locations cost more to insure, but you can save money on your premiums by choosing a policy with a higher deductible.

You may also have the option of bundling an umbrella policy with your existing insurance coverage, like your landlord insurance. Ask your current insurance provider if they offer any discounts for combining multiple policies with them. 

What Is the Best Umbrella Policy for Landlords?

There’s no one-size-fits-all answer to this question, but the best policy for you depends on your existing liability insurance coverage, the number of properties you own, and the other key factors enumerated in the preceding section.

Do make sure you get an umbrella policy that matches your business structure. If you own your rental property in an LLC, you probably need a commercial or business umbrella policy to cover your real estate enterprises rather than personal umbrella insurance. 

Does Umbrella Insurance Cover Short-Term Rentals?

Umbrella Insurance may cover short-term rentals, but some policies specifically exclude short-term or vacation rentals. Check the policy wording carefully; you may have to add a rider to cover short-term rentals.

Does an LLC Need an Umbrella Policy?

Many real estate investors transfer their properties to an LLC to help shield their personal assets from liabilities stemming from their real estate business. If you do this, do you still need an umbrella policy?

Holding your rental properties in an LLC does draw a theoretical barrier between your business and your personal assets. But that doesn’t prevent a particularly aggrieved person from trying to come after them anyway. Such attempts shouldn’t hold up in court as long as you’ve maintained a strict division between your LLC and your personal finances, but I’d just as soon not take any chances.

Perhaps more importantly, an umbrella policy pays out the cost of damages on behalf of your business when invoked, meaning you won’t have to liquidate the LLC’s assets and potentially close down your real estate business to pay a big settlement. Instead, the umbrella policy would pay the damages and your business can keep on running more or less uninterrupted. 

How Much Umbrella Insurance Do I Need?

How much umbrella insurance you need depends on two factors: how much risk exposure you have, minus how much your primary insurance policies already cover.

Check your primary rental property insurance to see if it covers bodily injury, medical expenses, personal property damage, and other types of coverage you might want as a landlord. If you skimped on landlord insurance, it might be worth upping your umbrella coverage just in case.

And if you have multiple properties and lots of tenants, especially lower-end properties, having some extra umbrella coverage can give you peace of mind.

 

Final Thoughts on Umbrella Insurance

Before you become a landlord, you need to consider all the risks. That includes not just weak or negative rental property cash flow, but also legal liability. 

Umbrella insurance offers landlords a powerful tool that provides extra protection against unforeseen events, accidents, and legal disputes. By understanding what umbrella insurance is, why landlords need it, and the key considerations for obtaining the right coverage, you can make informed decisions about how to safeguard your real estate investments and secure peace of mind.

 

Have you opted for extra coverage with an umbrella landlord insurance policy? What are your thoughts on buying additional protection as a rental property owner?

 

 

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About the Author

Jim Cirigliano has more than 15 years of experience writing original content for consumer and business publications in industries including personal finance, construction and manufacturing, nature and outdoors, and science and biotechnology. He operates Spot Check Editorial, which produces world-class content that engages readers and customers.

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