I was having a conversation with a landlord recently discussing his new property here in San Antonio. This landlord I learned had served in the service, retired with a good pension and had been fiscally responsible. Including the property here in San Antonio, he owned properties throughout Texas and beyond totaling 5 units. When we got to the topic of insurance on the property and what our recommendations were, the conversation took an interesting turn.
I mentioned to the owner that he would want to update his insurance agent on the home and make sure that coverage extended to this new property through his Umbrella Policy. It was then that he asked me what an Umbrella Policy was. I had assumed he already had one in place because these policies are easy to attain and cheap as well. I was glad to go into depth on the topic as it is one of my favorite tools for landlords.
Essentially, once you start acquiring assets, anyone can become a stronger target for a lawsuit. Obviously if you are broke and don't have anything, you probably aren't going to be sued. Even if you have very little but the perception exists that you have money or assets, then you have more liability. That is where the Umbrella Policy comes into play.
This policy essentially steps in to help provide legal representation should you be sued and if you are found negligent and damages are awarded, then the Umbrella Policy would step in. For example, if I were to get in a car wreck and hurt someone, if the judge and or jury award a settlement to the people I hit, the policy would cover that judgement up to the policy limits. I point out this example because it has nothing to do with my investment properties but I am still protected. When a potential lawsuit could be brought, one of the first steps the plaintiff attorney is going to do is see if you potentially have assets. It is not that hard to find those assets so you need a level of protection.
Companies like State Farm, Farmers, Allstate and just about anyone else will provide an Umbrella Policy. My recommended policy limits are roughly $1,000,000. That policy will run less than $500 annually in almost any cases. And I recommend that you purchase an Umbrella Policy when you buy your first investment property. As a property manager, one of my primary responsibilities it help owners mitigate risk while maximizing cash flow. I have found the Umbrella Policy to be a great tool in lowering exposure to risk.
All in all, if you don't have one yet, get one. It takes just minutes to add it to your policy coverage and can be a lifesaver in a difficult situation!