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Umbrella Insurance Policies: Do You Need One?

There’s been some discussion about umbrella insurance policies in the ADPI Facebook group, but many people don’t realize that an umbrella policy exists or is a viable option. Let’s discuss the advantages of these policies and how you can determine whether you need one.

What is an Umbrella Insurance Policy?

For this article, we’ll focus on umbrella policies for real estate.

An umbrella policy is an extension of liability coverage on homeowners’ policies. These policies provide a higher amount of coverage for more situations than what a usual homeowner’s policy covers. Policies usually start at $1,000,000 coverage but can go up to $5 million or $10 million, depending on the insurer.

In addition, if you own rental property, the liability coverage that Umbrella Insurance Policies provide can go beyond what your landlord policy covers. This additional protection is essential as your liability increases with renting out your property.

Do You Need Umbrella Insurance?

Let’s face it – currently live in a pretty sue-happy world. Your primary policy may not cover damages related to injuries, slander, etc., so it’s crucial to protect yourself. If you have investments, it’s vital to look at your options. For a small amount per year, you could save yourself a lot of headaches.

According to Investopedia.com, a general rule of thumb for needing an umbrella policy is “if you engage in some activity that puts you at greater risk of incurring excess liability, you’re an even better candidate for an umbrella policy. Personal liability risk factors include owning property, renting it out, employing household staff, having a trampoline or hot tub, hosting large parties, and being a well-known public figure.” Basically, the more risk you are at being sued, the more you need to consider an umbrella policy.

How Much Does Umbrella Insurance Cost?

The cost will depend on the insurer and how much coverage you decide to purchase. Most policies start at $1 million in coverage and cost $150-$300 per YEAR (yes, it’s that cheap). If you’re looking for $2 million in coverage, you’ll pay about $75 more a year – and about $50 more a year for each additional million.

Why is Umbrella Insurance So Cheap?

The main reason umbrella insurance policies are so affordable is that your primary homeowner’s policy provides the majority of coverage – umbrella policies kick in only if the primary insurance policy doesn’t (or can’t) cover the incident. Although that’s true, definitely read the fine print because you may be required to carry maximum coverage on your primary policy before purchasing umbrella insurance.

What Are Some Things NOT Covered by Umbrella Insurance?

  •  Deliberate Damage – Umbrella policies won’t cover any damage the policyholder deliberately caused. If you purposely caused harm to someone (or someone else’s property), your policy won’t cover those damages.
  •  Damage to your personal property – Umbrella insurance only covers liability – so it will only cover if you damage someone else’s property, not your own. Double-check to ensure you have enough coverage on your homeowner’s policy to cover damage to your property.
  • Business or Professional Activities Liability – You’ll need business liability insurance to have the proper coverage for registered businesses.

Can Umbrella Policies Cover Property Other Than Real Estate?

Yes! Although it can be a great addition to real estate property insurance, there are umbrella policies for autos, RVs (recreational vehicles), boats, etc. Contact your favorite insurance provider to see if they offer policies or if they can recommend someone who does!

We all hope not to find ourselves in situations where we would need umbrella insurance, but it’s better to be protected if something unexpected happens. It’s essential to look at your options and talk with your insurance agent to determine the best path to protect your hard-earned assets.

Kelly Madden

Kelly Madden

Kelly is a 14-year Air Force spouse, real estate agent, real estate investor, and virtual assistant. After starting out as an intern with ADPI in 2019 and later acting as ADPI’s blog coordinator in Jan 2020, Kelly is thrilled and honored to take on the role of ADPI’s new Community Manager as of November 2020. She looks forward to building our community and supporting our members throughout their real estate investing journey.
Kelly Madden

Kelly Madden

Kelly is a 14-year Air Force spouse, real estate agent, real estate investor, and virtual assistant. After starting out as an intern with ADPI in 2019 and later acting as ADPI’s blog coordinator in Jan 2020, Kelly is thrilled and honored to take on the role of ADPI’s new Community Manager as of November 2020. She looks forward to building our community and supporting our members throughout their real estate investing journey.
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Our team strives to educate, mentor and empower active duty service members, veterans, spouses and military families to reach financial freedom through creating passive income through real estate investing. Our goal is for Active Duty Passive Income (ADPI) members to own as much of America as possible.