Unlike the typical property insurance policy we all have on our properties that is a must have, whether or not to get Umbrella insurance is not as clear. There is no right answer as to what is enough insurance to carry. Rather, it all depends on the risk tolerance of each individual. Insurance does not cover everything that could happen. In fact, each insurance policy can even cover different things and have exclusions. Just because a umbrella policy is bought does not mean you are perfectly protected. An umbrella does not provide protection outside of the primary policy (i.e. they both only cover the same events), rather the umbrella provides extra limits for the things that the primary policy will cover. For example, most rental property insurance policy have pet exclusions, thus if your tenant bites the mailman, a policy with a pet exclusion will have no protection thus the umbrella would not help. This is where the LLC is important. The LLC is designed to separate your business liability from your personal liability. If you have an insurance policy through our master policy (click the link for more info on our master policy) that is exclusive to our clients, you are protected against common insurance exclusions such as the pet exclusion. Also, with the insurance policy we have secured for our clients, you have $1,000,000 in general liability insurance. In the example above, if your tenants pet bites the mailman and sues you for $1,000,000, you are covered. For those that have 10 or fewer policies, we usually don’t see folks buying umbrellas. Again, it is all about your risk tolerance. I own over 20 properties in 2 different LLC’s and do not carry one, rather, I am ok with the $1,000,000 in GL insurance that our policy carries. BTW, for what it is worth, the largest lawsuit I have seen in my 15 years of doing this is $15,000; in those 15 years, we see maybe 1 lawsuit a year (out of 920 homes under mgmt) and typically it is something trivial.
The main takeaway here is umbrella coverage, which is just an extension of your current policy. If your policies coverage is not enough, then an umbrella policy may be for you. As you are losing sleep, determine