Here’s Why Landlords Should Consider Umbrella Insurance

 Post by Azibo Team on September 1, 2022

Umbrella insurance provides additional liability coverage to help protect you and your rental properties.

Even the most prepared rental property owners can’t anticipate a catastrophe — especially one that exhausts the liability limits of a primary landlord insurance policy. Here’s how umbrella insurance adds a layer of protection over your assets to help you weather an unexpected storm.

As a landlord, you can always prepare for difficult times by getting comprehensive property insurance, hiring local property managers to help manage your portfolio, and padding your savings account. But unfortunately, catastrophes may still occur — and the financial blow can be severe. 

While being sued for $1 million or more is unlikely, it’s not impossible. Tragic accidents on your property, or even off-site using your assets, can result in unimaginable costs that your primary insurance policy simply cannot cover. As a rental property owner with an expanding portfolio, automobiles, pools, or watercraft, the risk of accidents and lawsuits is higher than for the average person. 

There’s no such thing as being too prepared, especially when it comes to rental property ownership. Here’s what you need to know about umbrella insurance — and why you should consider purchasing an added layer of liability protection for your assets. 

What is umbrella insurance?

Let’s explain umbrella insurance with an analogy. Think of a primary landlord insurance policy as a raincoat for your rental properties — and an umbrella policy is the umbrella over your raincoat that keeps you completely sheltered from the rain. Umbrella insurance provides additional liability coverage to help protect you and your assets in two scenarios:

  1. If your primary insurance policy (regular homeowners, landlord, auto, or watercraft policy coverage) doesn’t cover you for a specific scenario
  2. If you’ve exhausted the financial limits of your primary plan and need more coverage 

Typically, umbrella insurance covers injury to others or damages to their possessions. Unlike other insurance policies that may only apply to one person unless otherwise added (like an auto policy), umbrella insurance covers all members of a family or household.

How much does umbrella insurance cost?

As with regular insurance policies, the cost of umbrella policies depends on a number of factors, including:

  • How much coverage you want to buy
  • Where your covered properties are located
  • The level of risk you present to your insurer (the more homes, cars, watercraft, and assets you own, or the more people under one household, the higher the costs)

That said, umbrella insurance tends to be relatively inexpensive compared to other forms of insurance. According to the Insurance Information Institute, most $1 million umbrella insurance policies cost between $150 and $300 per year. 

On top of the deductible, there is typically an additional fee to activate umbrella insurance. This activation fee is usually a percentage of how much you’re going to need, depending on the carrier. However, every carrier and policy is different so it’s important that landlords understand the terms of their contract before signing. 

What does an umbrella policy cover?

Umbrella insurance offers coverage beyond the limits of your other insurance policies, or for claims that may not be entirely covered by your existing liability policies. This includes the following types of liability that can lead to expensive lawsuits:

  • Bodily injury (e.g. an auto accident where you’re sued and found at fault)
  • Property damage (e.g. damaged vehicle in an accident)
  • Rental property accidents (e.g. guest falls down icy stairs on your property)

Among the most common scenarios for activating umbrella insurance is when the liability limits on an auto policy are exhausted. 

Imagine you get into a car accident with another person and they decide to sue you for $1 million. Your auto insurance coverage will cover you up to $300,000 (after you reach your deductible), but if you’re found liable, you’re on the hook for the remaining $700,000. 

Without a personal liability umbrella, you have to come up with this exorbitant amount out of pocket — presumably by garnishing your wages, taking out a loan, or cutting into your savings or retirement fund. This is a life-altering financial loss.

Now imagine that you have $1 million in umbrella insurance. Your policy covers the outstanding $700,000 that your plan couldn’t — as well as any attorney fees or lawsuit-related expenses that weren’t covered. All you're responsible for is the deductible from your primary auto policy plus a fee for the umbrella to 'drop down'.

It’s also important to note that individual households and businesses alike rely on umbrella insurance to protect their assets. While households use it to cover primary homes, rental units, automobiles, boats, motorcycles, and more, businesses may use it to cover their commercial assets, like warehouses, commercial trucks, and fleet automobiles. 

What doesn’t umbrella insurance cover?

As with any insurance policy or legal agreement, it’s essential that landlords read all terms of the umbrella policy before signing a contract. This ensures you fully understand what is covered, and what may be excluded from the policy. The following scenarios, for example, are often not covered under umbrella policies:

  • Your injuries or damages to your personal property (e.g. falling down your own stairs at home)
  • An intentional or criminal action causing damage to someone else (e.g. intentionally driving your car into a building)
  • Commercial assets under a personal umbrella policy (e.g. your personal vehicle won’t be covered if it’s being used as an Uber or taxi cab service)
  • Liability that was specified under a signed contract 

What are the benefits of umbrella insurance?

When it comes to umbrella insurance, many landlords wonder: Why do I need $1 million worth of liability coverage if I already have primary insurance?

Unfortunately, tragic accidents often happen when we least expect them. And owning a rental property, automobile, pool, or watercraft only heightens the risk of accidents — and potential lawsuits. Your assets across your portfolio are often worth far more than all of your liability coverage combined. Here are some of the most significant benefits of added coverage: 

1. It offers financial protection

For a relatively low cost, umbrella insurance protects you from paying hundreds of thousands of dollars in the event of a lawsuit or exhausting your primary insurance. In other words, you don’t have to live like a millionaire to be insured like a millionaire.

2. It covers everyone in your household

Unlike auto policies that require you to add other names to the policy, umbrella insurance is designed to cover your entire household. For example, if your daughter gets into an argument at school and punches someone in the face, umbrella insurance can help cover your entire family if the other family sues. 

3. It acts as an extension of your existing insurance policies 

Working in tandem to supplement your primary insurance, auto, or renters’ policies, umbrella insurance functions as an extension of your existing coverage. If you have a claim, you generally consult your primary insurance first. Then, if you know you’re going to exhaust that coverage, you also make an umbrella insurance claim. Combined, you have two strong tools in your toolbox to help you cover costs and avoid financial burdens. 

Find the right umbrella insurance with Azibo

You can never be too careful when it comes to protecting your family, rental portfolio, and other assets. With Azibo, it’s easy to purchase this added layer of coverage and customize it to your needs. When you request a landlord insurance quote from Azibo, we can help you explore the supplementary umbrella insurance option that works best for you, whether that's connected to your primary insurance or a standalone plan. 

Don’t wait to protect your family and assets with umbrella insurance. Get started with Azibo today

Disclaimer: The information provided in this post does not, and is not intended to, constitute insurance advice; instead, all information, content, and materials are for general informational purposes only. This content may not constitute the most up-to-date insurance information. Readers must contact a licensed insurance agent or company to obtain quotes, advice, and guidance with respect to any insurance matter. No reader, user, or browser of this article should act or refrain from acting on the basis of information herein without first seeking the advice of a licensed insurance producer.

Azibo Insurance Services LLC f/k/a Zibo Insurance Services LLC, a wholly owned subsidiary of Azibo Inc, is a licensed insurance producer. Contact us to discuss your specific insurance needs.

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