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"Umbrella Insurance: What It is and Why You Should Have It"

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Umbrella insurance kicks in when your liability coverage is spent, and could cover multiple properties. Think of this as a form of blanket liability protection.

For example, if you have a $500K umbrella policy and a $500K liability policy, and you are successfully sued for $700K, your liability policy pays the first $500K and your umbrella policy picks up the remaining $200K.


Because umbrella insurance coverage only kicks in when your "regular" liability coverage runs out, it is not considered as risky from the insurer's perspective and is typically very cheap – perhaps $200 or so a year for a $1MM policy.

In fact, a $1MM umbrella policy is the recommended minimum, but I would suggest that you buy more coverage if you can afford it.

So there you have it. You'll need property and liability coverage for each property, with a blanket umbrella policy on top that covers all your properties.

Here is a picture that illustrates the concept of umbrella insurance as it relates to property investing:

umbrella insurance


One more thing to keep in mind is that your umbrella policy must typically match the classification of your other liability policies.

For example, if you have 3 duplexes, all of which are insured via standard, non-commercial insurance policies, then the blanket umbrella policy that covers all 3 must also be of the non-commercial variety. Similarly, if all 3 have commercial policies, then your umbrella policy must also be commercial.

However, if 1 of your duplexes has a commercial policy, and the other 2 have non-commercial policies, then you will not be able to apply umbrella coverage to all 3. In this case, you could:

  • Convert the 2 non-commercial policies to commercial, and then get a commercial umbrella policy to cover all 3 properties.
  • Or, you could raise your liability coverage on the commercial policy to $1MM or more, and then get a non-commercial umbrella policy on top of the other 2 duplexes.

The first option will likely be more expensive, but your choice will depend on your specific situation. So if you find yourself with mixed-categorized policies you should definitely seek guidance from your insurance agent. I only bring it up here so that you are aware of this potential issue as you shop for umbrella insurance.

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One Response to Umbrella Insurance: What It is and Why You Should Have It

  1. Jodie Charmichael says:

    This is so true! Hubby has an investment property and a couple years ago one of the tenants tripped and cut his face on a bunch of broken glass. Hubby had $500K liability but the suit was $625K. Thank God, his umbrella insurance covered the difference.

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