Does Your Rental Property Require Umbrella Insurance Policy? (2024)

As a property owner, you will be responsible for any mishaps or undesirable incidents that occur on your rental property, which may include:

• Injuries or property damage sustained by tenants, visitors, or guests
• Advertising injuries like libel or slander

These incidents will make you liable for the medical or damage expenses, which you will probably cover with your general liability policy. However, what if the payout exceeds your general liability policy's limit? This is where an umbrella policy will kick in to cover the remaining. Nevertheless, a property owner must have a landlord insurance policy to get an umbrella policy.

An LLC (limited liability company) helps protect a landlord's personal property and other business properties. For example, if a landlord resides in California and owns rental homes in Phoenix and Austin, they might create one LLC in Arizona and another in Texas. If a tenant in the Phoenix property sustains an injury and sues the landlord, the landlord's insurance will first kick in to cover the claim. If the payout exceeds the coverage limit, Arizona LLC will cover the remaining amount.

However, the issue in using the LLC is the assets of the LLC may be at risk. Say, for example, the landlord may be forced to sell the property at the lowest possible rate to settle claims. Contrarily, an umbrella policy will not put your assets at risk. All you need to do is pay the deductible and thereafter, your policy will cover the remaining amount that is not covered by the landlord's insurance.

Unlike a home insurance policy that covers one property at a time, an umbrella policy covers multiple rental properties in different states. The common perils covered under the policy are:

• Bodily injuries resulting from lack of maintenance
• Damages caused by the tenant to a third party
• Injuries sustained in a vacant home or common areas (parking areas, laundry room, etc.)
• Existing tenant's property stolen by former tenant (if the incident was caused because of not changing the locks between tenants)
• Lawsuits filed by a third party or tenant

An umbrella policy will not cover:

• Damage to the rental property
• Damage intentionally caused by the property owner
• Landlord's injuries or related expenses
• Business activities

No! Excess liability insurance increases the coverage limit of an existing liability on a single specific coverage, such as premises liability, whereas an umbrella policy generally provides coverage on multiple lines of coverage.

With umbrella insurance, you can rent out your properties without worrying about expensive liabilities and lawsuits. So, ensure you have the right umbrella coverage.