An “Umbrella Policy” is an additional insurance policy that provides an extra layer of liability or lawsuit protection. In general, this is a policy that many people with higher incomes or higher net-worth should consider purchasing. And remember, people who own real estate income property would probably fall into one of these groups. Most ‘Personal Umbrella Policies’ are issued with $ 1 million of additional protection, but the amount can be higher amounts as needed.
Over 95% of all claims on an Umbrella Policy are related to a motor vehicle accident. Consumers may worry about someone injuring themselves at their house or at a rental property, but the truth is, vehicle accidents are the cause of almost all claims. This explains why probably over two-thirds of all families that have an Umbrella Policy do not own investment real estate.
For the real estate investor, there are two major methods for providing extra lawsuit protection: (A) an Umbrella Policy, or (B) higher liability limits on the property insurance policy itself. Here are some factors that may influence that decision:
Maximum Number of Units – Most Personal Umbrella Policies set a limit of 4 for the maximum number of rental units that can be covered by the policy. That means you have ‘maxed-out’ your coverage with 4 single family homes or with just one four-plex. Investors with more than 4 rental units must purchase a ‘Commercial’ Umbrella Policy for all owned units (including those first 4.) And remember, every policy means more expense plus now allocating the cost for the Commercial Umbrella among all owned units.
Adding Your Property Manager As An Additional Insured – Virtually all property management agreements require that the property owner add the property manager as an additional insured on his investment property insurance policy. More and more also specify the minimum coverage amount for liability. Most now require either $500,000 or $1 million. But because an Umbrella Policy cannot be expanded upon to include other people, the property owner cannot add his property manager to an umbrella. This means that even when there is an Umbrella, the property policy itself must have a liability limit that is high enough to meet the property manager’s requirements.
Special Rental Property Problems May Not Be Included In An Umbrella – Keep in mind that the Personal Liability Umbrella deals primarily with car accidents. Remember, over 95% of all Umbrella claims involve motor vehicle accidents.
Your insurance company makes a charge for adding your rental properties to your Umbrella, but keep in mind that the day-today focus of that policy is an auto accident. Certain types of issues that relate only to rental property, may be covered, or may not be covered. Examples would be a lawsuit resulting from wrongful eviction or a lawsuit for invasion of privacy.
Option (B) is to have $1 million, $2 million, or more of liability coverage included in the base policy for the property. Simple, straightforward, and often less expensive.
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by CLARK SANCHEZ, an Arizona insurance agent for over 41 years. Also a Vendor-Affiliate with AZREIA for over 19 years. Clark will answer all of your insurance questions at firstname.lastname@example.org or (602) 803-2179