What is an umbrella policy?
An umbrella insurance policy is a type of liability insurance that provides additional liability coverage over and above the landlord’s standard liability policy coverage.
Umbrella insurance coverage takes effect when the costs of a claim surpass the landlord’s standard liability policy limits. Umbrella policies are not replacement insurance policies. An umbrella policy does not cover anything that is not already covered by a base policy. Umbrella insurance is additional insurance and can cover a broader range of insurable events that are usually excluded in a standard landlord insurance policy. Covered events could include false arrest, mental anguish, discrimination, slander, and libel. However if a landlord is negligent in s legal responsibilities, or commits a criminal act, liability insurance will not cover lawsuit expenses or awards for damages.
For example, a landlord has a basic liability policy for $250,000 coverage. A tenant files a lawsuit for an injury that occurred on the rental property and is awarded $1 million in damages. Since the landlord’s coverage is only $250,000, the landlord will have to pay the outstanding balance. If the landlord had purchased a million dollar umbrella policy to protect his business for liability, the umbrella policy would have taken effect and covered the outstanding balance.
The landlord’s basic policies and his umbrella policy should have the same beginning and ending date. Policy effective dates are important because some insurers limit their umbrella coverage to injuries or damages that occur during the policy period of the umbrella. There can be potential problems if the both policy dates are not the same. A landlord may want to determine if his base policy has a “prior acts” rider that will cover claims made against an event that occurred before current policy actually went into effect, e.g., an existing rental property was bought with tenants already in place.
Premiums for umbrella policies may vary by insurance carrier, the type of business, policy limits, and the scope of coverage needed to help protect the business.