Increase liability insurance Vs. Umbrella Policy

7 Replies

I have two properties (combined value - $1M) in NJ. I have to decide between increasing liability insurance (that comes with home insurance) on both to $1M from current $500K or taking a $1M umbrella policy. Here are the quotes for the coverage - 

1. Increasing liability insurance for both properties - $129/year

2. Taking $1M umbrella policy - $147/year. If I go for umbrella policy, I'll have to increase my auto liability coverage which will cost me an additional $141/year.

In a nutshell, the umbrella policy will cost me ~$175/year more. Are there any advantages of umbrella policy over the liability insurance? 

Also, how many times the property value should my insurance be? Is there a thumb rule here?

Without knowing the umbrella details, it'll help protect one property from an event on the other, your properties from an auto issue, and vice-versa. How much equity do you have at risk?

There are many variables to take into consideration in regards to this matter, as a lot of things are state specific. Speaking strictly from a claims standpoint, (if you had a loss that you needed to file a claim) the umbrella would likely be the better option, as sometimes something that may be denied under your liability policy may be  covered under an umbrella policy. Again, it's all speculative until you actually have to file a claim and an investigation is undergone and completed. 

About $200K equity

Originally posted by @Manshi M.:

About $200K equity

 I meant about $200K in the two properties. $600K total equity.

I am nowhere near an insurance expert.  The first thing I would recommend is find an agent whom you respect and have them write all your policies so they understand your situation well, can find products that fit well together and can maximize any discounts you may be entitled too.  Personally, I use an umbrella to cover my policies.  One of the reasons is that it is easy to adjust as my portfolio changes.  Sometimes I buy properties.  Sometimes I sell.  My agent adjusts the umbrella coverage at the same time as she adds or deletes other policies.  The new activity will often prompt her to review my policies and suggest changes if appropriate.

I have 19 properties and am looking to purchase an umbrella policy.  How much coverage should I purchase?  Is there a rule of thumb based on the amount of equity you have?   I was thinking that I could get a 2MM umbrella and call it good.

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