How to find umbrella insurance?

Question

Hello all,

I'm new to rental business. We just used the buy and hold strategy to refinance our previous sfh and would like to rent it out asap. However, I'm not sure about how to get the umbrella insurance for this property. What are some good websites or articles to read? I'm aware of the LLC option but heard there're pros and cons both. I have asked a friend, a realtor who recently got into her first rental busines but she didn't seem to have an umbrella insurance. Isn't it a high risk if the tenant got injured and sued you? I have two little ones to raise and cannot afford that type of issues. What are your suggestions, BP friends? I'm from Greater Baton Rouge Area. Looking forward to getting to know others and potentially working together.

Thanks for reading.

Yangbin

Russell Brazil · Answer

Geico does policies if you own 4 or less units.

Greg Scott · Answer

First of all, you should have liability insurance as part of your rent property insurance.  I typically got $500K liability.  It is fairly rare for any sort of lawsuit to exceed that threshold.  I also had a $2M umbrella policy so slept very well at night even having my properties in my own name.

An umbrella policy is written of of your homeowner policy, your personal residence, and not your rent property.   They are fairly cheap.  When I had a lot of SF rentals, I was paying $800/year.  My most recent quote was $465/year.

An umbrella policy actually protects you in ways that most investors don't think about. Most investors worry something will happen at the property and someone will sue to get at your personal assets.  It is far more likely that YOU will do something and someone will sue you and use the lawsuit to get at your rent property assets.  For example, if you hit someone with your car, they might sue you and try to take your rent property.  An umbrella policy helps protect against this kind of risk too.

John Mocker · Answer

Yangbin,

A personal Umbrella policy provides coverage if the Liability limits of the listed underlying policies (home, dwelling/fire, Auto, Boat, etc. are exhaused in a claim.  For example, if you have $500,000 Liability on your rented dwelling and there is a covered claim with a $1,000,000 judgement, the umbrella would start after the $500,000 from the Dwelling/Fire policy.

Umbrella's are generally sold in increments of $1,000,000.  Normally the least expensive policy is one issued by the Home or Auto insurance company.  Many have a limit on the number of rental properties and some will only cover over their own policies.  Umbrella policies have required limits on the underylying policies and Companies will check that before they will write the coverage.

If you have ownership in different entities (home in your name, rental in LLC, etc.) you need to make sure the Umbrella will cover over all the entities.

If you can not get the coverage through the companies that insure your home/auto/dwelling, there are stand alone umbrella policies.  Your agent can check companies like USLI, personalumbrella.com, and RLI.

Josue Vargas · Answer

@Yangbin Tong Call your insurance policy company, and also shop around. Having your property under an LLC is not the same as having it properly insured. LLCs have some protection against your personal liability, but ultimately is not an insurance policy. Like someone else said here, insurance policies are more important than LLCs for coverage and protecting you against things you do not control.

I would recommend to talk to an insurance broker. They will look at many options (companies) and can shop around in your behalf and save you money for whatever insurance suits you best.

I would recommend to talk to an insurance broker.  They will look at many options (companies) and can shop around in your behalf and save you money for whatever insurance suits you best.

Aaron Porter · Answer

@Yangbin Tong

One of the big reasons that a lot of my clients get and use their umbrella policies is to bring their auto insurance up.  There are a lot of uninsured and underinsured drivers on the road and if you have an umbrella policy that will bring the coverage on you, your family, and your vehicle way up.

This is a breakdown of the average cost of auto accidents in the US in 2020.  (provided by National Safety Councel https://injuryfacts.nsc.org/al...)

As for how much liability coverage to have on your rental properties.  That is up to you.  I have clients that carry the minimum and tell me they justify it because they are good people and don't do shady s***.  Conversely I have a few clients that have a $20 million umbrellas.  As an agent my recommendations usually go something like.  Having a $1 million dollar umbrella is relatively cheap way to make sure that you are covered for the top limit of what 90%+ of the population could ever need.  However if you do not want to get an umbrella yet that is totally ok but I do recommend having 500k liabilities limits on your properties, including your personal home.  When the time comes in your Real Estate Investing journey an umbrella policy will help you to mitigate risks in the way that are the best practices.

Yangbin Tong · Answer

Thank you so much, guys! Wow that's a lot of wonderful advice and tips. I appreoctae everyone's input!

So I did a few things. First, I looked up online and noticed that some financial advisors not recommend umbrella policy for people with less than $500,000 net asset. Well, I'm way below that level. Like I said in the beginning, I just started getting into rental business. The reason I was asking about umbrella policy is because of the BP webinars. So am I just overthinking this whole time?

Then I called my auto insurance company for a quote of umbrella policy. Just like someone mentioned here, they checked my current coverage and told me the need to increase my liability coverage before initiating an umbrella policy. With these combined, the annual extra cost for me will be $1,300. That's actually not much. The question remains: do I need an umbrella policy?

I also asked for a quote for $500,000 homeowner liability coverage for current house, and that's about $200 annual increase. The auto liability coverage of $250,000 will cause an increase of annual premium by $700.

When I put together all the information and quotes, it seems reasonable to bump up my homeowner liability to $500,000 and auto liability to $250,000 or $300,000, without umbrella policy. Maybe even that is over insuring?

What I also need suggestion is the liability for the rental property. Someone here said they do $500,000. Is that a good starting point or too much for a single family home?

These questions must seem so easy for most of BP users, but they confuse me a lot. Even if I have listened to many webinars. Thank you again for your time to read and comment.

Happy New Year to all!

Yangbin

AK Fowler · Answer

@Yangbin Tong

Just call your insurance carrier or broker. It’s pretty cheap to have and it definitely makes you sleep better at night. We have one that covers our family and properties with a $1Million policy which kicks in after our standard insurance on our properties.

Alexander Szikla · Answer

I work with Statefarm and have found their policies to be reasonable.

Bill B. · Answer

My allstate agent uses USLI for my policy (I think I pay $75 extra as a “commission” to him). Premium is based on total coverage ($2million in my case) and number of cars, boats, motorcycles, private residences, and rental properties. I pay around $1200 for 14 insured properties and a couple cars.).

You are at least 10x more likely do so something personally to get yourself sued than your rental property is. This is why I think an umbrella is more important than an llc everyone worries about (you still lose all your properties in different llc’s if you do something to get sued personally.).

How to find umbrella insurance?

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