Umbrella Insurance for Rental Property: Details and Coverage
Umbrella insurance is an additional layer of protection that’s added together to your other insurance policies – or in several cases, you can buy an independent policy.
Umbrella insurance for rental property provides extra security for damages, malicious prosecution, slander/libel, business liability, landlord liability, and injuries/incidents in your home involving non-household members.
If you have prized possessions that you want to safeguard against liability claims that may happen in court, the umbrella policy will give you additional protection.
You may wonder: How much umbrella insurance do I need for a rental property?
In this post, you’ll learn everything you need to know about umbrella insurance for rental properties, including:
- Who it’s for?
- How much does it cost?
- How can you lower costs?
Let’s dive in.
What Exactly is Umbrella Insurance?
Umbrella insurance is a kind of liability insurance designed to support your standard liability policies, like rental property, home, or auto insurance. But it covers a much bigger limit and goes far beyond claims concerning your auto and home.
The primary purpose of an umbrella policy is to safeguard your assets against unforeseen circumstances and other accidents wherein you are held accountable for personal injury and property damage. If the other side files a lawsuit against you, the umbrella coverage you purchased will cover the damages you’re legally accountable for up to the policy limit.
Does Umbrella Insurance Cover Rental Property?
Individuals with assets to protect, like rental properties, or people who might face lawsuits can take advantage of the security offered by liability insurance.
For tenants who have a renter’s insurance policy, expanding your liability limits beyond the basic coverage is now possible if you buy an umbrella policy. Suppose you are deemed responsible for causing physical damage or damage to rental properties. In that case, the umbrella insurance for rental properties will provide extra protection for your property and pay for any legal expenses.
Read More: Rental Property Coverage – Details and Coverage
What is Umbrella Insurance for Rental Property?
Rental property umbrella insurance is a policy that lies on top of existing insurance policies. It provides landlords with additional liability protection against owner liability and injuries of tenants, guests, or vendors. A landlord must have one or more underlying liability policies to obtain an umbrella policy.
For example, if a tenant gets injured at the rental property and makes a claim, the landlord’s liability insurance policy covers the initial claim. If the payout exceeds the policy cover, umbrella insurance for rental property will cover the remainder.
How Does Umbrella Insurance for Rental Property Work?
For example, an investor with a personal net worth of $500,000 purchased a rental property for $250,000 and didn’t have enough time to form an LLC. Shortly after the transaction, the tenant got injured on the premises, sued the investor, and was awarded damages in the amount of $750,000.
If the investor had landlord liability insurance, the policy would cover the claim up to the maximum coverage amount. An umbrella policy for landlords covers the balance on your rental property.
What Does Umbrella Insurance for Rental Property Cover?
Rental property umbrella insurance becomes active when the liability coverage from other insurance policies runs out. Landlord umbrella insurance for a rental property covers multiple rental properties in different states.
Typically, this policy covers:
- An injured tenant or guest of the tenant who got injured because the home was not properly maintained
- If a landlord is sued by a third party for damages caused by the tenant
- If a former tenant breaks into the house and steals or damages the property of the existing tenant
- If a landlord is sued and has to pay for legal defenses
- If a tenant or guest is injured in the common area of a multifamily property
What Does Umbrella Insurance for Rental Property Not Cover?
No insurance policy covers everything, so umbrella insurance for a rental property also has its exclusions, such as:
- Damages to the property
- Damage that was caused intentionally by the landlord
- Personal injuries or expenses sustained by the landlord
- Rental property owned under an LLC
Why Do I Need Umbrella Insurance for a Rental Property?
Every landlord should have an umbrella policy for a rental property in case they are held liable for damages or injury on their property. Because lawsuits can cost millions, umbrella policies provide effective coverage.
Here are a few main benefits of having umbrella insurance for a rental property:
- It is an affordable addition to liability coverage
- It covers landlords and brokers
- It perfectly complements landlord insurance and LLCs
How Much Does Umbrella Insurance for Rental Property Cost?
Usually, a $1 million umbrella policy costs between $150 and $300 per year. The cost of the policy will increase between $50 and $75 for each additional million in coverage.
The cost of an umbrella policy for a rental property depends on several factors, such as:
- The type of property
- Property value
- The amount of deductible
- Specific needs of investors
Read More: Everything You Need To Know About Apartment Building Insurance
How to Lower the Cost of Umbrella Insurance for Rental Property
Many insurance companies offer investors discounts for having umbrella insurance for multiple rental properties. For example, a landlord insurance policy usually offers the option of adding an umbrella policy for a small annual fee.
It is also recommended to shop around and get several quotes before deciding on purchasing an insurance policy.
How Much Umbrella Insurance Do I Need For a Rental Property?
When selecting your coverage limits, there are three essential things that you need to consider:
- The risks you will potentially encounter – take note of the risks that you might encounter as a renter or homeowner. It can be the risk of causing an accident on your way to work or any potentially harmful activities you are involved in that could harm those people around you. This can be due to negligence or even from natural causes. It helps to have coverage against possible injuries and damages from accidents or other causes.
- All your assets’ value includes stocks, possessions, savings, bonds, retirement funds, and properties. The more umbrella policy limit you buy, means you can secure more assets. The properties and assets can also cause injuries and other damages. It is common practice to insure these properties and assets.
- The loss of future profits – Liability lawsuits can mean you lose assets and profits in the future. Individuals with many assets will want to understand the damage a claim could do over many years in the future. This depends on your earning potential, so even if you don’t have many assets now, if you are earning a lot, you may lose money you haven’t made yet.
Umbrella Insurance Policy vs Rental Property LLC
Investors usually set up an LLC or limited liability company to protect personal property and other business properties. For example, if an investor lives in California and owns a single-family rental home in Phoenix and Austin, they might want to set up an LLC in Arizona and in Texas.
If their tenant in Phoenix gets injured and sues the landlord for medical expenses, the investor could be found liable for not maintaining the property. In this case, the landlord insurance for the Phoenix rental would pay the maximum coverage amount, and the landlord policy in Arizona would cover the remaining tenant’s claim.
One of the potential issues with using an LLC for protection is that the assets of the LLC are still at risk. In the case of this investor, they may be forced to sell the rental property in Phoenix to raise cash to pay for the remainder of the claim.
On the other hand, umbrella insurance for rental property covers the remainder of the claim that was not covered by the underlying landlord insurance policy on the Phoenix rental property.
Excess Liability vs. Umbrella Insurance
Excess and umbrella are two different liability policies. An excess liability policy increases the limit of an existing liability over a single line of coverage (for example, a premises liability). On the other hand, an umbrella policy pays for multiple lines of coverage and provides blanket umbrella coverage for rental properties in different cities and states.
Umbrella Insurance for Rental Property Requirements
Because a personal umbrella insurance policy may not cover business activities (for example, rental properties owned under an LLC), a business or commercial umbrella policy is usually required.
Is Umbrella Insurance Worth It for Rental Property?
Commercial umbrella insurance for rental properties is especially worth it for landlords with several properties as it provides an additional layer of protection if tenants sue them for far more than just personal injuries.
Does Umbrella Insurance Cover Multiple Properties?
Yes. Unlike other insurance policies, umbrella insurance covers multiple rental properties in different cities and states.
Can I Write Off Umbrella Insurance?
Umbrella policy premiums are not usually tax deductible. If you own a business and you have umbrella insurance that supplements other business policies, your premiums may be tax deductible.
Can Umbrella Insurance Cover Landlords?
Umbrella insurance is ideal for landlords because it covers them if they are sued or held responsible for property damages or bodily injuries.
Does Umbrella Insurance Cover Anything Outside the Rental Properties?
Yes, umbrella insurance also covers personal situations such as libel and slander.
You can benefit from your umbrella insurance if you are held accountable and need to cover the damages, or if you are sued and required to shoulder your legal defense – even if the outcome proves you are not liable.
An umbrella policy will only cover the expenses once your standard liability limits have been used or if your standard liability coverage does not cover the claim.
Moreover, if you have a huge amount of personal net worth, buying an umbrella policy is highly suggested to safeguard yourself. See to it that you look for the ideal coverage by asking for help from an independent insurance specialist. They will personalize your coverage to fit your specific needs.
Are you still confused about umbrella insurance for rental property, or do you need some help getting a quote for your business? Contact us today and get all the information you need fast and for free!
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