Does Umbrella Insurance Cover Rental Property?

Whether you’re the landlord of one property or hold multiple rental investments, carrying the right insurance is crucial to protect your financial interests. 

Most likely, you already have general liability and property insurance. While this acts as your primary coverage, landlords often want the added peace of mind that comes from higher policy limits and the flexibility of protection across holdings.

This is where property owners can benefit from an umbrella insurance policy.

In this article, we’ll explain how umbrella insurance works, why it’s popular with landlords, and how it can help secure your real estate portfolio. We’ll also cover common questions like:

• How much umbrella insurance do I need for rental property?
• What type of insurance should landlords obtain?
• What is not covered by an umbrella policy?
• Is an umbrella policy worth the money?

First, let’s go over a few key terms you’ll need to be familiar with while considering insurance for landlords:

• General liability insurance: Covers medical bills and legal expenses associated with someone being hurt on your property or at your business.

• Property insurance: Covers the primary rental home, dwelling, or office and other physical property such as sheds, detached garages, and equipment for maintaining the rental. If you’re a mom-and-pop landlord, it’s important to note that a homeowner’s insurance policy will not cover rental property.

• Lost rental income coverage: Commonly added to a landlord’s property coverage, this pays out what you would have earned in rent in the event the home becomes uninhabitable after damage or during repairs.

• Umbrella insurance: Offers protection above and beyond primary property and liability coverage when a lawsuit settlement or legal fees exceed underlying policy limits.

Depending on your insurer, liability and property coverage may be combined with supplemental lines for loss of use/loss of income or other incidents. These coverages generally make up standard landlord insurance but are subject to policy limits which may be too low to cover substantial claims.

Does Umbrella Insurance Cover Rental Property?

The short answer is yes. However, umbrella coverage is not a property-based policy. Its prime use is to cover legal costs if you’re sued or forced to pay a settlement.

Umbrella insurance is a type of excess liability coverage that can be applied to a group of rental properties or a single location. Landlords purchase umbrella coverage to protect themselves in case a tenant or another individual sues for damages and the resulting financial responsibility exceeds normal insurance limits.

For instance, imagine your tenant or a visitor slipping on an icy walkway in front of your rental property and sustaining severe injuries. In this scenario, you could lose in court or settle outside of court if the slip-and-fall occurred due to the owner’s failure to maintain a safe property. If the resulting medical expenses and legal fees surpass the liability limit of your standard landlord insurance, an umbrella policy can cover the excess amount. 

Umbrella insurance is particularly important for real estate investors with multiple properties, multi-unit or multi-tenant rentals, or fully-furnished and luxury properties. These types of properties often come with higher risks and potential liabilities, making the additional coverage provided by an umbrella policy a wise investment.

What Is Not Covered By an Umbrella Policy?

Although extensive, umbrella coverage has limits and exclusions like any other insurance. Be sure to talk to your agent about your specific coverage. Commons exclusions include: 

1. Intentional Damage/Acts

If someone is injured stemming from an unlawful activity – such as fraud or failing to adhere to building codes – resulting claims won’t be paid out.

2. Property Damage

Umbrella policies aren’t substitutes for or excess liability coverage on top of general property insurance. The coverage won’t include replacing or repairing property damaged by natural disasters or other perils. Many landlords also buy specific coverage for earthquakes or floods to provide enhanced property protection.

3. Commercial Activity

Beyond profiting from the rental space, other business activities won’t be covered by an umbrella policy. To cover commercial activity beyond general liability or property insurance, you’d need to purchase a professional liability policy or commercial insurance.

4. Your Own Injury

Umbrella coverage is for liability resulting from a third-party, contractor, or tenant being injured. If you’re hurt while visiting or working on your rental, you should use your health insurance to cover expenses.

How Much Umbrella Insurance Do I Need for Rental Property?

Agents sell umbrella insurance plans in increments of $1 million of coverage. The amount of coverage you need or want for rental property will directly influence your premium costs.

Working with a trusted insurance agent or broker is the best way to ensure you have enough coverage without being over-insured. 

Your claims history, asset value, type of property, location, and a host of other factors influence the cost of umbrella insurance. A common range, according to the Insurance Information Institute, is $200 to $350 in yearly premiums per $1 million of umbrella coverage you buy. 

One way to consider how much umbrella insurance you need for a rental property is to look at the number of tenants and whether you own multiple properties in different locations. A $1 million umbrella policy is often sufficient for landlords with less than four or five single-family homes. Insurance experts recommend carrying umbrella coverage equal to or greater than the value of your total assets. 

Consulting with an experienced insurance advisor can help you determine the exact amount of coverage needed. 

Is an Umbrella Policy Worth the Money?

Accidents happen. In cases where your liability is higher than your standard insurance coverage, an umbrella policy can be the difference between financial ruin and stable real estate investing.

Tenants experiencing health issues stemming from property maintenance, especially, can introduce litigation risks for landlords. In addition, owning multiple properties and hiring contractors to perform repairs carries the risk of a worker being injured on site. For these reasons and more, it often makes financial sense to add umbrella coverage to your insurance portfolio.

At Independent Insurance Associates, we have a wealth of experience helping landlords and real estate investors shop for the right insurance. 

Having adequate umbrella insurance coverage helps you protect yourself from potentially devastating financial losses. Having the right insurance agent helps you save time and find the best value. 

With Independent Insurance Associates, you can build your insurance portfolio to include rental property coverage, umbrella insurance, and more. Call us today to get started!