when to get an umbrella policy?

12 Replies

I just want to get some opinions. 

For a new investor starting out, when would be a good time to get an umbrella policy? 

When you hit a certain number of properties? 2 houses, 6 houses.

When you have a certain net worth? Broke vs 500k vs 1 million?

How do you determine how much liability you need? 1 million, net worth?

Also, additional liability on a house is relatively cheap. Would you raise the liability on individual plans to the maximum first?


I would stay away from an umbrella policy. The chances of requiring that level of coverage are slim to none in real estate. It really isnt about your net worth its about the level of damage so to speak. Unless you are talking about punitive damages from a libel lawsuit or something along those lines you wont see damage levels beyond standard liability policies. 

interesting point.  Before I even got involved with real estate I was considering an umbrella at a certain point of wealth.  What do you see as acceptable liability limits per property? 100k? 300k?

I definitely don't believe in over insuring or buying insurance you don't need. 

I'd get an umbrella even if I didn't have rentals.  What if you blow through a red light and kill a young surgeon?  Do you really want to only be covered up to the limits of your auto insurance?  What do you think a jury might award for his life-time earnings?  I suppose you could file bankruptcy.  On the rental front; what if a tenant dies due to your negligence?  I think that owning RE carries a lot of exposure.  I've carried 5Mil for the past 25yrs (1Mil prior).   I bumped it the day I read a newspaper article about a tenant's child recovering 3.8Mil because the hot water heater was set too high.  The child suffered burns.

An umbrella of 5Mil covering 20 properties, 4 cars and 2 boats costs me about 1K per year.

@Cheryl C.

 I agree with you. How has owning rental properties changed your view on coverage? I guess each property opens you up to more liability. If you didn't own 20 properties but still had the same net worth how much insurance would you carry? 

@Mike Landry

 We have three rentals and got an umbrella policy after we closed on the third. I may be a little risk averse, but it makes me feel better.

As our attorney put it, if someone sues you and the insurance company is on the hook for only $300,000, they'll send their C team folks to try to settle as quickly as possible. When their on the hook for $2 million (the amount we got) they're sending in the A team.

It all comes down to your own feelings, but for us, it helps us sleep a little better. And it's relatively inexpensive through USAA. We pay about $350 per year for $2 million of coverage.

I have a $5M umbrella on 50 properties and the cost is only $2,500/yr.  For the peace of mind it's worth it for me.  If you're under-insured on property coverage then worst case you lose that property.  If you're under-insured on liability then worst cast you lose everything you have.   Before I had all the rentals I still carried an umbrella that covered my home, cars, and boat.  A slip and fall isn't going to wipe out your underlying coverage but if someone dies or becomes permanently disabled the numbers could get very high. 

I'd still have 5Mil.  If I had no assets and no job to be garnished, I guess I wouldn't need insurance (the reason we all have uninsured motorist coverage).  I've talked to my agent about the limits and she thinks it's enough.  I hope so.  We were just discussing this last week. 

Owning the RE made me more aware of liability issues (as did my former profession -lawyer).  I had around 5 properties when I got the 1Mil coverage.  We were 25 and didn't think about insurance much.  At 30 it got bumped to 5Mil.

I don't think that insuring to your NW is the proper analysis.  What if the award is twice your NW?  They take your ins. and all your money?  What if your NW is 50Mil - you clearly don't need that much coverage.  I think looking at liability awards is a better method.  This is why our coverage hasn't changed in 25yrs.

I have 3 properties, and a $1M umbrella policy that costs about $140/year, cheap insurance, and a lot cheaper than forming an LLC. I had to raise my liability coverage on my homeowner's policies before they would issue, but for me, well worth it. You definitely have a hgher probability of needing additional insurance as the number of properties you own goes up, so I think one has to decide whether to establish an LLC or get additional insurance through an umbrella policy in order to mitigate risk.

thanks everyone for the responses. I appreciate everyone's opinions. I'm hopefully buying my 3rd rental property soon. I think it's about time for me to get a $1 million policy. It's on my to do list in the next couple of months! Thanks. 

I think you need an umbrella policy AND an LLC at some level of net worth. Probably umbrella first for most people but don't assume either is a perfect defense if enough money is involved

I agree with the others who have recommended getting a policy. I setup an LLC and got a $1M umbrella policy when I got my third property. It's a very small amount of money per year (

Umbrella policies are so cheap, I recommend doing it right away. For all my properties (and I think my policy even covers like my cars and stuff??), it's only like $23. It's a great means of asset protection, potentially saves from the need to put the properties into an LLC, and....why not be protected.

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