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Updated almost 10 years ago on . Most recent reply
How exactly do umbrella insurance policies work?
Say I have two properties, both under separate LLCs and insurance policies.
If I get an umbrella policy under one of those insurance policies, can it cover the other property as well? Or do I need to get two umbrella policies, one for each?
If I get an umbrella policy personally (like under my home residence policy), can I have it cover my LLC properties? Conversely, if I get it under one of my LLCs, can it cover me personally?
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For an umbrella to cover a property the property must specifically be named on the umbrella policy. You must also have enough underlying coverage for the umbrella to work.
In no other sector of business have I seen such confusion on an umbrella policy. Umbrellas will not automatically cover every property, but they will cover any property listed.
Basically think of an umbrella as a regular old liability policy, it covers you in the fact of lawsuit, but it's got an awful high deductible, usually about $300k or $500k. So you have the first policy to cover that first $300/500k, which is the primary policy, this will usually be a policy that also covers the property.
So if a large claim happens it will use the liability on the first policy then go into the umbrella (excess) policy.
Here are common mistakes with the umbrella.
1. Not naming every exposure you have (meaning not telling about every driver, auto, home, etc).
2. Not updating the umbrella policy, important if it has a different underwriter, so you bought three houses, you purchased a policy for each, but did you tell the umbrella underwriter?
3. Not maintaining the underlying limit. You get a call from property A's insurance agent, he can save you a bundle, but he moves you to a $100,000 liability, you told the umbrella agent that you would provide $500,000, guess what, you just bought a $400,000 deductible.
4. Not turning in the claim with the umbrella. There was a fall, he seems okay, but you turned it into the property policy, 2 years later you receive lawsuit papers requesting $1,000,000, your property policy responds with the $500,000 in coverage, they use it all, you then turn it into your umbrella and they deny the claim for late reporting, leaving you on the hook for the other $500,000 plus legal fees.
Anymore, it is getting common for a $1,000,000 per occurrence on the primary policy or $2,000,000 per occurrence, I will always prefer that due to the complications above.
Now again to the confusion with SFH property investors, you can buy a policy that covers multiple locations for property and for liability, that is not called an umbrella policy, that is just called a property or liability or package policy with many locations. Do not think that Simon Property Group buys a policy for each location, they have on master policy. Bonus points if you can guess what Simon Property Group's deductible is.