Umbrella Insurance for Landlords: When One Rental Becomes a Liability Magnet
Updated: 6 days ago
If you own a rental, a tenant or a visitor can sue you over something that happens on that property. Your landlord policy has a liability limit. A serious injury claim can go past it, and whatever is left over can come out of your savings, your home equity and your future income.
An umbrella policy is extra liability coverage that sits on top of your other policies. This guide covers how it works for landlords, the gap most landlords don't know about, and how much to carry.
How an umbrella policy works
An umbrella pays after your underlying policy has paid its full limit.
It needs a policy underneath. You can't buy an umbrella on its own. It sits over your landlord (dwelling fire) policy, your homeowners policy, your auto policy or a commercial liability policy.
It starts where the underlying limit ends. Example: your landlord policy has $300,000 of liability and you add a $1 million umbrella. For one covered claim, you have up to $1.3 million in total.
It can be broader than the policy underneath. Many umbrellas also cover claims like libel and slander, and some cover things the underlying policy doesn't. It depends on the policy.
Limits usually start at $1 million and go up in $1 million steps.
Does umbrella insurance cover rental property?
Not always, and this is the gap that catches landlords.
A personal umbrella is built to sit over your homeowners and auto policies. Many personal umbrella policies exclude rental property, or only cover a limited number of rental units, or only cover rentals that are listed on the policy.
So you have three ways to cover rentals:
A personal umbrella that lists your rentals. Some insurance companies will add your rental properties to a personal umbrella, often up to a set number of units. This is usually the simplest and cheapest option for a landlord with a few doors.
A commercial umbrella. If you own rentals through an LLC, or own a larger number of units, a commercial umbrella sits over the LLC's commercial liability policy.
Both. Landlords who own rentals through an LLC and also own their own home often need a personal umbrella for themselves and a commercial umbrella for the LLC.
If you already have a personal umbrella: ask your agent to confirm in writing that each rental is covered. Don't assume it is.
What the umbrella needs underneath it
Umbrella insurance companies require minimum liability limits on the policies underneath. Common requirements are:
Homeowners and landlord policies: often $300,000 or $500,000 of liability per policy.
Auto: often $250,000 per person / $500,000 per accident for bodily injury, or a $500,000 combined limit.
Commercial liability (LLC): often $1 million per occurrence.
The exact numbers depend on the insurance company. If a policy underneath is below the minimum, it has to be raised first. That raises the cost of that policy a little, but it also gives you better protection on the first layer.
Note for Minnesota drivers: Minnesota's legal auto minimums (30/60/10, plus no-fault PIP) are far below what an umbrella requires. Your auto policy will almost always need higher limits before an umbrella can sit on top of it.
What umbrella insurance usually covers
Bodily injury to others, above your underlying limit
Damage to other people's property, above your underlying limit
Personal injury claims such as libel, slander and wrongful eviction (check the policy wording)
Legal defense costs (in many policies these are paid on top of the limit)
What it usually doesn't cover
Damage to your own building. That's your property coverage, not liability.
Claims your underlying policy denies because of an exclusion. For example, if your landlord policy excludes short-term rentals and you rent on Airbnb without telling your insurance company, the umbrella usually won't step in either.
Intentional acts.
Business activities that aren't listed (a personal umbrella won't cover a business you run).
Common landlord exclusions in some policies: lead paint, mold, pollution. Ask about these if your buildings are older.
How much umbrella coverage should a landlord carry?
A simple starting point: enough to protect what you could lose in a lawsuit. That's your home equity, savings, investments, the equity in your rentals, and your future income.
One or two rentals, average assets: $1 million is a common starting point.
Several rentals, or higher net worth: $2 million to $5 million.
LLC with many units: talk through the commercial umbrella limit with your agent. Lenders and commercial tenants sometimes set a minimum.
The cost per extra million usually goes down as the limit goes up. A personal umbrella is often a few hundred dollars a year for the first $1 million, but your price depends on your properties, your drivers and your claims history.
When an umbrella matters most
You should look at an umbrella if any of these are true:
You own two or more rentals.
Your assets are worth more than your landlord policy's liability limit.
Your rental has a lot of people coming and going (short-term rentals, student housing, multi-unit buildings).
The property has a pool, trampoline, fire pit, deck, steep stairs, or a tenant's dog.
You're responsible for snow and ice removal on walks and stairs. In Minnesota, that's most landlords for half the year.
Example: how the layers work
This is an illustration, not a real claim. A guest falls on icy steps at your duplex and sues. The case settles for $700,000.
Your landlord policy has $300,000 of liability. It pays $300,000.
With a $1 million umbrella that covers the rental: the umbrella pays the remaining $400,000.
Without an umbrella, or with a personal umbrella that excludes rentals: the remaining $400,000 is yours to pay.
FAQ
I have a personal umbrella. Does it cover my rentals?
Maybe. Many personal umbrellas exclude rental property or limit it to listed units. Ask your agent to confirm each rental in writing.
Do I need a separate umbrella if my rentals are in an LLC?
Usually yes. The LLC is a separate legal entity, and a personal umbrella generally won't cover it. A commercial umbrella in the LLC's name sits over the LLC's liability policy.
Will an umbrella cover a claim my landlord policy denied?
Usually not. An umbrella follows the policy underneath it. If the claim is excluded there, it's usually excluded in the umbrella too.
What's the difference between umbrella and excess liability?
Excess liability follows the underlying policy's terms exactly. An umbrella can be broader and cover some claims the underlying policy doesn't. People often use the two terms for the same thing.
Is umbrella insurance worth it for one rental?
For many landlords, yes. One serious injury claim can exceed a typical landlord policy's liability limit, and an umbrella is usually inexpensive for the protection it adds.
Want to know whether your rentals are covered? Call City Insurance and Financial Services at (763) 582-1888 or contact us. Related reading: DP1 vs DP3 landlord policies and landlord liability when a tenant slips on the sidewalk.
City Insurance and Financial Services, Minnetonka, MN.
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