3 Reasons Umbrella Insurance for Rental Properties is Essential

If you were to skydive, would you want one chute or two? The obvious answer is two because skydiving is a calculated risk, and if something were to go wrong, you’d want a backup. Landlords often think they’re financially protected from lawsuits because they already have one chute: landlord insurance. However, sometimes, landlord insurance isn’t enough, and in those cases, they’ll want a second chute — umbrella insurance.

Umbrella insurance is a form of liability insurance that tops up your client’s coverage when their regular insurance just won’t cut it. So if your client’s landlord insurance taps out at $500,000, but they’re liable for $1 million worth of damages, the umbrella will kick in and cover the rest. And it covers more than just the damages. It’ll also help landlords pay for the cost of their legal defense — this way, they don’t beat the suit but lose their rental property to legal fees.

Every landlord should have an umbrella insurance policy for their rental property to protect them if they’re held liable for damages or injury on one of their properties. These lawsuits can cost millions, and umbrella policies provide an effective safeguard of additional coverage for what usually costs less than a few dollars a day. However, just because they should, it doesn’t mean your clients will always see it that way. Here are three reasons you can use to convince them that carrying umbrella insurance should be a no-brainer for every landlord who wants financial protection should the worst happen.

1. It’s an Affordable Extension to Liability Coverage

A $1 million umbrella insurance policy at Distinguished costs as little as $500 a year. That equals just a little over $1 a day, and in return, your client gets enough liability coverage to financially survive even large lawsuits.

Specifically, a Distinguished umbrella policy can provide from $1 to $5 million worth of extra coverage, depending on your client’s needs. For landlords with several properties, a more extensive umbrella coverage would provide an extra layer of protection if multiple lawsuits stack up in a single year.

This umbrella liability coverage is important because tenants can sue landlords for far more than just personal injury these days. Distinguished’s umbrella policy has several follow form coverages that help secure the insured if they’re held liable for:

  • Bodily Injury and Property Damage
  • Advertising Injury
  • Host Liquor Liability
  • Discrimination
  • Personal Injury
  • Contractual Liability
  • Auto Liability
  • Employee Benefit Liability

Beyond the follow form coverages, our umbrella insurance also covers costs related to your client’s defense. These include:

  • Pay On Behalf: The insurer will pay the damages for the insured.
  • Right & Duty To Defend: The insurer will pay for and be in control of any legal defense coming from the lawsuit against the insured.
  • Defense Outside Limit: The cost of defending your client doesn’t affect their policy limits.

For more details, check out Distinguished’s Real Estate Umbrella Policy page, where you can find more specifics on our insurance coverage, exclusions, and liability limits.

2. It’s Convenient for Landlords and Brokers

Umbrella insurance policies are convenient to implement because they can flexibly cover multiple properties, and brokers can easily submit applications online.

For landlords, the policies are incredibly flexible — capable of covering multiple properties spread out across several states. So if your client owns a home in Albuquerque, New Mexico, and a condo in Zanesville, Ohio, they’ll still only need one simple policy.

Contrast this flexibility with setting up a limited liability company (LLC) — another popular option for landlords looking to get protection from lawsuits. An LLC does provide some liability protection for your client’s personal assets (more on that later), but setting them up can be a pain. Each state has different LLC laws, meaning landlords will need to hire outside counsel to help them understand which state would be best to incorporate in and what fees and regulations are involved.

For umbrella insurance, the process couldn’t be easier. Landlords simply need to go to you (their favorite insurance broker), give you their relevant details, and then you can get them a quote. Easy, right?

The good news is that getting a quote for your client is pretty easy, too. With Distinguished’s 24/7 Online Broker Portal, brokers can submit in minutes and get an approved quote in less than a day. If the landlord is happy with the price of the policy, then you can bind the policy completely online — no need to chat with one of our sales representatives. If you’re interested in learning more about our online portal, check out our FAQs, contact our support staff, or head over to registration to get started.

3. It Complements Landlord Insurance and LLCs

Landlord insurance or an LLC doesn’t exclude the need for umbrella insurance for rental properties. Although both of these solutions provide some level of coverage, they still have weak points that an umbrella insurance policy can make up for.

Landlord insurance is necessary for every landlord because it covers them in case of property damage and liability suits. However, the liability coverage in most landlord insurance policies only provides between $500,000 and $1,000,000 of coverage. For single property owners, this might be enough in most cases. However, some suits will eclipse this coverage incredibly quickly. For instance, a fire in New York City led to a $3 billion suit filed against the landlord and the city. This is an extreme example, but it shows how basic liability policies may not be enough anymore for landlords.

Another protection that many landlords turn to is LLCs. These legal structures separate the property from the owner in the eyes of the law, so if there is a liability suit, the owner’s individual wealth remains safe. However, if a lawsuit is successful and the landlord liability insurance on that property isn’t enough to cover the bill, it might force the insured to sell the property to cover the legal bills of the LLC. By encouraging your client to include an umbrella insurance policy overtop of their LLC and landlord insurance, they get the best possible coverage and don’t have to worry about being forced to sell their property or drain their bank accounts if they’re held liable.

Learn More About Our Umbrella Insurance for Rental Properties

Clients are often suspicious when brokers offer policies that seem excessive. No one wants to pay more than they have to in premiums, and it would be easy for the uninformed to view umbrella insurance as a frivolous extra on top of a landlord insurance policy or LLC.

The key to convincing your clients of the importance of umbrella insurance is education: Explaining what the liability risks are when renting out property, how much those risks could cost them, and how much that second chute is really worth when they face financial freefall.

If you or your clients have questions about Distinguished’s Umbrella Insurance for Rental Properties, please reach out to our support team or take a look through our umbrella FAQs. To get a quote today, register your brokerage and submit your business through our Broker Portal.

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