Are you considering an umbrella insurance policy for your rental properties? Most investors feel that opening an LLC also known as a limited liability company is more than enough to protect themselves. But lawsuits are a tricky beast and LLCs might certainly protect you from personal lawsuits, but they do not necessarily protect you from everything.
Related – Check out our LLC workshop.
As an example, let’s say one of your tenants hurts their back slipping on an icy sidewalk in front of your house. Since it’s your fault for not cleaning up your property in time or sufficiently enough, they decide to sue you in an effort to recoup their medical expenses and pain and suffering.
Guess what? This tenant wins the case and is awarded $500,000 for their troubles. You have liability insurance which is going to pay for about $100,000, but what are you going to use to pay for the rest? You’re now personally responsible for $400,000 if you do not have an LLC in place or umbrella coverage. But if you do have an LLC, it will protect you personally and the LLC assets are required to pay the additional $400,000.
What about an Umbrella Insurance Policy?
To keep the initial scenario going, if you had an umbrella insurance policy in place it would cover way more than the standard landlord liability insurance covers in this situation. This additional policy will protect you from personally being responsible in any fiscal matter whatsoever. This will cover any injury or any other lawsuit by personally protecting you from ever being sued on an individual level.
How Does an Umbrella Insurance Policy Work?
Simply put, this policy works by simply existing. Using the example above, if your regular liability coverage only paid $100,000 in the lawsuit, the umbrella coverage would then kick in and protect you by paying the rest of the settlement owed in the lawsuit.
So, if you still owed your tenant $400,000, instead of worrying about paying for it out of your own pocket or taking the money out of your LLC, you have the additional umbrella insurance in place that will cover the rest of these very expensive costs to meet the max payout.
Are There Any Other Benefits to Getting Umbrella Insurance?
Yes, of course there are other benefits to umbrella insurance. As a matter of fact, this insurance is really good because it covers claims that wouldn’t typically get covered under your normal insurance policy.
Some examples include: false arrest, libel, slander, and even mental anguish lawsuits or malicious prosecution. And if you haven’t figured it out already, this umbrella insurance is going to cover way more than your rental properties. It covers all kinds of personal circumstances as well, which is very important for a whole host of other reasons.
As an example, let’s say you’ve taken your dog to the dog park and you’re letting your pup run free. Unfortunately there is a young child also roaming around the dog park and for one reason or another your dog decides to bite this child on the face. It leaves a disfiguring scar on the child and obviously her parents are ready to sue and sue you big.
Guess what? Instead of personally being responsible for your dog in this scenario, your umbrella insurance is going to pay for these medical costs and more. These policies are incredibly flexible and designed to cover the least likely scenarios.
Is It Very Expensive to Obtain an Umbrella Insurance Policy?
Since it covers so much outside of the typical property liability insurance, you figure it’s going to cost an arm and a leg to obtain this coverage. But believe it or not, nothing could be further from the truth.
On average, and this varies depending on location, but it typically costs only $385 per year to get $1 million worth of umbrella insurance coverage. And you can get policies as high as $10 million a year in coverage if you desire, which would cost a little more than $1500 per year.
It’s up to you whether or not you decide to use this kind of insurance coverage to protect yourself and your assets. But it’s very inexpensive to say the least and it’s a great way to protect your personal assets so we highly recommend umbrella insurance to cover everything your standard liability policy doesn’t cover.