By Clark Sanchez | State Farm
A Personal Umbrella Policy can provide extra lawsuit protection for your household, but it may not be the right solution for extra protection for your investment property. Here are some reasons why:
- Most insurance companies will not add anyone or any other legal entity to an Umbrella Policy. This means you cannot add a business partner and, in some cases, cannot add an LLC. But the most common limitation is that you cannot add your property manager. Virtually all property management contracts require that you add your property manager to your investment property insurance, and many contracts establish a minimum level of liability protection. When you cannot add your property manager to your Umbrella Policy, your property manager is only protected up to the limits on the investment property policy and no more. On the subject of LLCs, it is important to note that there are still some insurance companies out there that will not issue an insurance policy of any type in the name of an LLC.
- Most insurance companies set a maximum number of “rental units” for their Umbrella Policies. For most insurance companies, that limit is four units. Note that these are not ‘properties’ or ‘buildings.’ These are rental units. This means that you are at the maximum if you own one four-plex or two duplexes. And, if you do have more than four units, you cannot use your existing Umbrella Policy to cover those four units at all. You must purchase another type of insurance policy to cover all of the units that you own (including the first 4). Another expense and another complication.
- While Umbrella Policies are known for their broad coverage, it is also possible that an Umbrella Policy might not have coverage that addresses certain perils that are unique to investment rental properties. A good example would be ‘wrongful eviction.’
What is the solution to these issues? The answer is that there are insurance providers that will include higher liability limits on the individual investment property policy itself. And these companies also have no limitations on providing insurance in the name of an LLC or a partnership.
Yes, you can obtain one insurance policy that ensures your investment property and also provides higher liability limits for both you and anyone who assists in the care and management of your property. Your insurance agent may tell you that this does not exist (because he/she does not have an insurance provider offering this option) but that is not correct. You can obtain one policy that both insures your property and also provides up to $5 million of liability protection. Best of all, this is very affordable and, in some cases, may actually cost less with the high liability included than you are currently paying for with a low-liability policy. Your current agent may be skeptical and may even tell you that those higher numbers are an “aggregate limit.” Wrong! Those higher numbers are what you want: the ‘per-occurrence’ limit.
Clark Sanchez is a 40+ year licensed Arizona insurance agent with a focus on investment property insurance. He is a 20+ year Affiliate Sponsor member of AZREIA and can be reached at firstname.lastname@example.org or at (602) 803-2179.