Ever wondered, “does umbrella insurance cover rental property?” The short answer is: yes, it can supplement a rental property with coverage beyond standard landlord or homeowner policies.
That said, insurance coverages are more complex than that surface answer. Not to mention that there are different policy types, and it’s hard to determine which covers which incidents, liabilities, and disputes. With this in mind, here’s a review of what umbrella insurance is and how it works for landlords in the rental business.
Key Takeaways
- Umbrella insurance provides supplemental coverage for when you reach your primary policy limits.
- This type of insurance policy is especially useful for landlords facing high-risk or high-value damage or injury claims.
- To qualify for a personal umbrella policy, you must first have high liability limits on your underlying landlord insurance.
What Is Umbrella Insurance?
As one of the apartment management companies Austin landlords trust, we know that an umbrella insurance is a type of liability coverage that can protect you from large claims that could harm your assets. It works as a supplementary coverage to standard insurance policies and is used to cover the remaining balance that your main policy is can’t.
How Umbrella Insurance Works for Landlords
We’ve seen too many people falsely believe they’re fully covered with their main insurance policy. While that’s true a lot of the time, there are still some scenarios and situations where you’ll need higher limits or better protection. This is exactly what the umbrella insurance offers to landlords.
For instance, let’s say that you have a tenant sue you for an injury on your property and the court awards damages amounting to three million dollars. However, your main insurance only covers up to one million. That’s where the umbrella insurance kicks in. Your primary insurance will cover up to its limit, and the umbrella insurance will handle the remaining balance.
What Does Umbrella Insurance Cover for Rental Property
An umbrella insurance policy for rental property typically helps you cover accident or negligence-related claims, like:
- Major liability claims
- Lawsuits that exceed your underlying policy’s payout limit (like judgements or legal defense costs related to a bodily injury on your property)
- Lawsuits involving defamation, false imprisonment, invasion of privacy, wrongful entry, and identity theft
- Legal defense costs in addition to the policy’s liability limit
- Coverage for personal injury claims, like libel, slander, or wrongful eviction claims
- Damage to other peoples’ property that you’re legally liable for, like to tenant belongings, a neighbor’s house, or a visitor’s car
- The costs of being legally liable for accidentally injuring someone (like a tenant or visitor), like medical expenses, hospital bills, rehabilitation costs, and lost wages.
That said, if your rental is held in an LLC, you may need to get covered for non-physical liabilities (e.g., severe disputes with a tenant), with a separate commercial umbrella policy or an endorsement.
What Umbrella Insurance Does NOT Cover
Umbrella insurance does not cover:
- Your property’s repairs or maintenance
- Damage to your personal belongings
- Any intentional or criminal acts, like to injure others, damage other people’s property, or for claims you received because you broke the law
- Personal injuries or illnesses that you’re not legally responsible for
- Liabilities connected to business activities
Still, it’s critical for us to note that this (and everything in the article) is solely meant as educational materials, not legal, financial, or any other kind of advice. To get definitive takes on this topic, it’s best to turn to a professional, like an attorney.
Umbrella Insurance vs Landlord Insurance
Landlord insurance generally covers the place you are leasing out. This means the building itself, lost rental income, and some tenant-related damages. On the other hand, umbrella insurance provides additional liability protection that works as soon as your landlord policy reaches its limit.
In short, landlord insurance looks after your property and income, while umbrella insurance protects your personal assets in case of a big lawsuit. Having both is a smart move, especially if you own several or higher-risk rental properties.
FAQs
Why Landlords Should Consider Umbrella Insurance
An umbrella policy gives landlords an extra layer of financial protection beyond their underlying insurance. It can cover major liability judgements and legal defense costs when your underlying policy gets maxed out. For instance, it covers high-cost bodily injury claims, damage to other people’s property, and specific landlord-related lawsuits, like for wrongful eviction, libel, and slander. All in all, it can help you safeguard your personal assets from potentially devastating financial losses.
How Much Umbrella Insurance Coverage Do Landlords Need?
Most umbrella insurance policies start at about one million dollars in coverage. This amount is enough for many landlords. However, if you own multiple or bigger assets, you might need to look into increasing the coverage of your policy. Insurance companies usually offer higher coverage with increments of one million dollars, typically starting at around $300,000 more.
How to Get Umbrella Insurance for Rental Property
If you’re looking for umbrella insurance, the first place to look is your current insurance provider. However, if you want to widen your options, it is also a good idea to compare quotes from other insurance companies. During the application process, your property will be inspected for potential risks, and the insurance policy should be tailored to meet your specific needs.
Streamline Property Management with BMG
All things considered, having umbrella insurance is absolutely critical if you want to have that extra layer of financial protection that most standard landlord policies might not cover. Although it may feel redundant, having both landlord and umbrella insurance gives you the peace of mind knowing that your business and your personal assets are more secure.
Although it’s critical to have an umbrella policy as a safety net, the other best defense in your arsenal is proactive risk mitigation. And property rental companies like us can be your first line of defense in that arena. We have a systemic, multi-pronged approach of having rigorous property inspections, vetted contractors we bring out to handle your repairs and maintenance, in-house accounting, and implementation of all applicable federal, state, and local laws. This way, you can be sure you cover your bases and minimize claims against you that could deplete your insurance limits. Interested? Contact us today to learn more about our services!
