What is an umbrella policy

Question

I have 5 rental properties in my name. A FB friend mentioned that she has an umbrella policy on properties. Her explanation was vague, so I'm here to ask...What is an umbrella policy, does it replace the current insurance I have on my properties and where can I obtain this policy? Thanks.

David M. · Answer

@Shonda Rountree

Umbrella polices provide LIABILITY coverage "over and above" an underlying coverage.  Your homeowner's / landlord policy will provide a certain amount of liability.  In the case of a claim, should the amount exceed that coverage limit, then the umbrella kicks in.

You can obtain the policy usually from your regular insurance company.  Usually comes in $1m increments up to $5m.  You can get it for yourself and so can LLC's.

The policy premium is pretty cheap since the majority of the risk is covered by the underlying policy.  The "nifty" thing about owning personally is that ONE umbrella policy can cover all your personal liabilities.  So, your auto insurance, primary home, rental properties, etc. are all covered under one relative cheap policy.  Its a good peace of mind.

Hope this helps.  Happy to chat.  Good luck.

John Mocker · Answer

Shonda,

As mentioned in the other posts, an umbrella policy provides additional Liability coverage if the Liability Limits of an underlying policy (ie. auto, home, rental property, boat, motorcycle,...) are exhausted in a claim.  Most Umbrella policies require you have at least a certain limit on your underlying policies.  For example, you may have to have $300,000 in liability on the homeowners policy.  So, if you have a loss at your home and the judgement against you is $500,000 the Homeowners would pay the $300,000 and then the umbrella would kick in for the remaining $200,000.

If you have properties in both your name and in an LLC some companies can cover both on a single umbrella while others will require two umbrella policies.   Check with your agent.  If you can not cover both on the same policy have the agent check for "Stand Alone" umbrella policies (the company writes them without requiring that you have the Underlying coverage with them) to see if any will cover both.

Jason Wray · Answer

Umbrella policy is an extra policy that offers additional coverage to protect you from not having sufficient coverage in case a claim comes against you due to injury.  In most cases investors put their properties in an LLC to avoid legal actions against their own personal assets.

When you are not holding a property vested in your LLC it can open you up to a lawsuit and if you have assets you want to protect its wise to have an umbrella policy.  Most home owner insurance policies only cover a certain amount of PP/PI but an umbrella can offer upwards of multimillion coverage and more than one property.

There is no real need to go out and get an umbrella policy if you are not trying to protect significant assets.  The home owner’s covers a decent amount should there be a loss/injury its when there is a major injury/death where the policy coverage can be exhausted and the person comes after you and your assets to cover the rest based on awarded lawsuit.

Shonda Rountree · Answer

Awesome. Thanks John

Shonda Rountree · Answer

Thank you so much

Shonda Rountree · Answer

Thank you so much

What is an umbrella policy

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