We don’t know what the future holds, and no matter how meticulously we try to keep our rental property secured and our renters safe, we’ll never know when a complaint or accident will arise causing us to potentially lose our property in a lawsuit battle.
Bottom line is this can be financially devastating for any rental property owner. The good news though is that, there is an umbrella policy for you. Providing excess coverage above and beyond the landlord’s and auto insurance policy, umbrella coverage policy can provide a minimum of $1 million of added liability protection for only a few hundreds of dollars annually.
Umbrella insurance policy is a catch all insurance policy that covers any liabilities over and above existing primary coverages. In the case when the insured is liable, the insured’s primary insurance will pay up to its limits and any additional amounts will be covered by the umbrella insurance; up the limit of the umbrella insurance policy. The umbrella insurance also provides coverages for false arrest, libel, slander, and liability coverage that may be excluded from the primary policy.
The basic landlord policy usually covers $100,000+ in liability protection (depending on the cost to rebuild your property), while the umbrellas’ starting coverage point is at $1 million and may go north of $10 million. The latter type starts to take in effect the second you maxed out the liability on policies for both landlord and auto policy (if you own a car).
Aside from the umbrella liability coverage, it’s recommended that the landlords require renters to purchase renter’s insurance (tenant’s insurance) with liability protection to cover the home or leased apartment. This is cover any liabilities due on the tenant’s behalf. Shockingly, statistics says that only 1 out of every 5 renters is covered with this policy.
What does an Umbrella Policy cover?
The umbrella policy provides protection to your personal assets, even including your future personal assets, such as wages, your inheritance, or even the lottery that you might win, against the cost of losing a lawsuit over an accident on your property or over a car accident. As we know, the losing party in a lawsuit has to pay the winning party’s medical expenses and lost wages, which could add up to quite a large sum.
Simply put, an umbrella policy is an excess liability protection that protects you from unforeseen and unfortunate events. Basically, it picks up where auto and homeowners’ / landlord insurance leaves off. It may have a high deductible, but this amount is designed to met by your other policies.
Upon Opening the Umbrella
Getting an umbrella coverage is about understanding your “exposures” and what you’ve been involved in. Your interests, hobbies, should be considered. Do you hunt? Do you play golf even when you’re renting? The more exposures you are into, the riskier is it for you and your belongings. Even the common act of having someone pet your dog could dramatically increase your liability.
The amount of protection is a matter of preference, which of course, needs the consideration of the present assets and potential net worth. The better way to do this is to put a higher price coverage than you think you can afford. The $1 million coverage may cost up to $300 a year, but this rate drops for the next coverage for the same amount, which may cost an extra $100 per year. Obviously, it’s about weighing what you can afford and understanding all your exposures. Also, you might want to consider your future earnings, because if you’re found liable for an accident, your wages can be leveraged to pay a judgment.
If you currently have a high net worth or will have high net worth sometime in the near future, and if you consider exposure against its cost, then you’ll understand that’s really practical to get the umbrella coverage.
So do you need a personal umbrella insurance for your rental properties? The short answer is YES.