Too many people think they know what an “Umbrella Policy” is and how it works. Unfortunately many people, including investors, property managers, and real estate agents, do not have a clear and correct understanding.

What is an “Umbrella” policy? It is NOT one policy that combines several separate policies for your autos, home, boat, etc. etc.

An “Umbrella” policy is an extra policy that provides additional lawsuit (liability) coverage. It provides an additional layer of liability protection, on top of the coverage that you must still carry on your cars, home, rentals, boat, etc. etc. Note that every Umbrella policy specifies the minimum ‘underlying coverage’ that is required on all of your other insurance policies.

Umbrella policies are not cheap. Their cost is based upon what they cover. People with several cars, houses, rental properties, boats, motorcycles, and operators under age 25, know that each risk factor adds to the total cost. A ‘personal’ umbrella policy can cost $500, $1,000 or more (per year). And almost every insurance company limits their ‘personal’ umbrella policy to a maximum of 4 rental ‘units.’. If you ‘max out’ your ‘personal umbrella’ with 4 rental units (yes…. one four-plex and you are ‘maxed out’) then the next step is a “Commercial Umbrella’.  Those families now must purchase two different Umbrella policies….one ‘Personal’ and another ‘Commercial.’ If that sounds inexpensive, you need your hearing checked!

And for the investor who owns rental properties in an LLC, there is the question of if and how the Umbrella will cover the investment properties that are held in the LLC. For many insurance companies, if the Umbrella is in your personal name, there can be a ‘coverage question’ for a rental property held in the name of an LLC.

One simple solution is the insurance company that offers a landlord or owner policy for investment rentals, that comes with higher liability limits. Increasing the base policy liability to a higher amount, like $ 2 million, can be about the same cost as adding a rental to an umbrella with $2 million limits. With this available option, the ‘miracle’ of the umbrella begins to fade. And, for property held in an LLC, there is never any question about coverage because the liability and the property are insured on one policy that is in the name of that LLC. Do you need higher limits of protection? Do you carry a $ 3 million umbrella or more? Higher liability limits on the policy itself, are available.

Property Managers always get the short-end when their owners use Umbrellas! That’s because only the liability from the policy on the property, extends to the property manager. That’s because all of the protection that the owner has from his umbrella, is his and his alone. But if the owner carries strong liability limits on the property policy itself, the property manager will be fully covered by the liability amount on the property policy. At least one insurance company makes high liability limits available and also automatically includes all property managers in their rental property policies for single family, duplex and rentals that are condos, townhomes, or patio homes. That company is State Farm. Most other carriers offer a maximum of $500,000 or sometimes $ 1 million for liability, and also require that the name of the property manager be specifically added to the policy by endorsement to be covered.

by CLARK SANCHEZ,  an Arizona insurance agent for over 40 years. Also a Vendor-Affiliate with AZREIA for over 18 years. You can contact Clark if you have any insurance related questions at or (602) 803-2179