Umbrella policy vs Landlord Policy

[Scott Peace]

Hello all, we are new to the REI. We have 6 units and are looking at getting some more insurance protection. We looked into an umbrella policy, but they insurance company said that we had to also insure our autos for more coverage. What do you all recommend for an investor at this level? Thanks, Scott

[Kevin Romines]

Umbrella policies are always secondary coverage to your underlying policies. That said, most major carriers offer them at very good prices, however you must have specific underlying limits on your auto / home / rentals / toys / home based businesses / & certain professional designations i.e. Teacher. We don't restrict you so much on the min. underlying coverage however the lower the underlying coverages, the higher the overall premium. So its in your best interest to carry sufficient coverage on the underlying policies.

Some companies will not allow you to have outside lines policies if you want an umbrella with them. We don't have a problem with that, however you will pay a premium for the umbrella at that point.

Your best bet is to sit down with your agent, have them do an analysis to determine the total amount of your assets, including 25-45% of your gross wages for 15 years or less if you are closer to retiring come up with a total dollar amount. Take that number and use it to determine the bare minimum amount of liability insurance you should have. If you are planning on adding additional assets in the near future, then go with the higher projected numbers.

Keep in mind, in the event of any liability claim (at fault auto accident / someone getting hurt on one of your properties, many more situations) your underlying policy will be 1st in line, then your umbrella will kick in once the underlying policy is exhausted. The policies also pay all defense costs over an above the liability limits until the point where the limits are exhausted. Then defense costs become your responsibility.

Don't try to save money in this area. Get more than enough coverage so you can sleep at night even when this kind of event occurs.

I have attached a real letter from our competitor to their client detailing the kind of nightmare that could happen. Protect yourself.