Umbrella insurance is a valuable tool for real estate investors to mitigate liability risks. This is especially true for those who do not hold their properties under Limited Liability Companies (LLCs) as umbrella policies can provide an extra layer of protection beyond the limits of standard property and liability insurance.
However, as your investment portfolio grows, obtaining personal umbrella insurance can become challenging. Many insurers impose limits—typically 3 to 6 properties—on the number of properties they are willing to cover under a personal umbrella policy.
If you’ve reached this threshold or anticipate growing beyond it, you may need to explore alternative insurance strategies. For larger portfolios, a commercial umbrella policy may be a better fit. Navigating these options doesn’t have to be overwhelming. Below are practical strategies and tips to help you secure adequate umbrella coverage for your rental properties.
Transition to a Commercial Umbrella Policy
When your portfolio exceeds the limits of personal umbrella insurance, transitioning to a commercial umbrella policy is often the most straightforward solution. These policies are designed for businesses, including real estate operations, and typically allow for coverage of a greater number of properties.
The good news is that you don’t necessarily need to formalize your real estate investments as LLCs or corporations to qualify. Many commercial insurers offer policies for individual investors operating as sole proprietors. Commercial umbrella policies also provide broader liability coverage, which can better protect investors with diverse or high-value portfolios.
Work with Independent Insurance Agents
Independent insurance agents can be invaluable in your search for the right policy. Unlike captive agents who represent a single insurance company, independent agents have access to multiple carriers and can identify options tailored to your unique needs. An experienced agent can also help you compare quotes, explain the nuances of coverage, and find ways to optimize your costs, such as bundling policies or adjusting coverage limits.
Look Into Specialty Insurers
Certain insurance carriers cater specifically to high-net-worth individuals or real estate investors with extensive property portfolios. These specialty insurers often offer umbrella policies with higher limits and greater flexibility than traditional providers. For example, Chubb, AIG, and PURE are known for serving affluent clients and investors with unique coverage needs. Some of these insurers provide umbrella coverage limits of up to $100 million, which can be ideal for those managing large or high-value portfolios.
Bundle Policies to Simplify Coverage
Bundling all your insurance policies—such as homeowners, auto, and fire policies—with a single insurer can simplify the process of obtaining umbrella coverage. Insurers are often more willing to extend umbrella coverage to clients who consolidate their policies with them. Bundling may also qualify you for discounts, which can help offset the cost of higher umbrella limits. Be sure to ask your insurer about multi-policy discounts or loyalty benefits.
Leverage Real Estate Networks for Insights
Engaging with local real estate investment groups, online forums, or landlord associations can provide valuable insights into navigating insurance challenges. Fellow investors often share their experiences and recommendations, including which insurers are accommodating to landlords with large or growing portfolios. Networking can also connect you with reliable independent agents or specialty insurers who have experience working with real estate investors. Examples of real estate investment and management groups in the Richmond area include NARPM, VAMA, RARealtors, CFBC, RPOA, RISE, GRID, and GRREIA.
Review Policy Exclusions and Conditions Carefully
When selecting an umbrella insurance policy, don’t overlook the fine print. Ensure the policy covers all your properties and understand any exclusions, limitations, or conditions that may apply. For example, some policies might exclude certain types of properties, such as short-term rentals or properties in specific locations.
Additionally, verify that your underlying property and liability policies meet the minimum coverage requirements set by the umbrella insurer. Failing to comply with these requirements could leave you exposed in a liability claim.
Assess Your Coverage Needs Regularly
Before purchasing or expanding your umbrella insurance, take stock of your total assets and potential liability risks. Experts recommend having umbrella coverage equal to or greater than the value of your total assets. For real estate investors, this includes property equity, savings, and any other holdings that could be at risk in a liability claim.
Evaluating your portfolio’s growth and projected risks on an annual basis will ensure that your coverage keeps pace with your investments.
Conclusion
As your real estate portfolio grows, so does your need for comprehensive liability protection. By exploring commercial umbrella policies, consulting with experienced insurance agents, and considering specialty insurers, you can find coverage that meets your needs.
Remember to reassess your coverage periodically, bundle policies where possible, and seek advice from your real estate network. With the right strategy, you can ensure that your investments—and your financial future—are well-protected.
Did You Know
PMI James River has certified investor advisors on staff that can provide real estate investors with granular calculations of their investment properties with long-term estimates that incorporate appreciation and time value for money. Be sure to ask the PMI team for such an analysis whether you see a property you're interested in, or wondering whether you should sell or hold your current investment.
