In the classroom today, Tim Norris explains how having an “umbrella” policy doesn’t give you any additions areas of coverage, but instead a higher level of coverage for areas that are already covered.
Tim Norris emphasizes how even with an umbrella policy, you might still need additional areas of coverage.
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investment industry teach you quick lessons to take you business to the next level. And now, let’s meet today’s expert host.
Tim: Good afternoon. My name is Tim Norris. I’m with the National Real Estate Insurance Group. I’m with you today with another episode of the REI Classroom. Today we’re going to talk about the ins and outs of umbrella insurance and how it pertains to your real estate investing business.
Mike: This REI Classroom real estate lesson is sponsored by VirtualStaffNow.com.
Tim: Umbrellas, contrary to popular belief, don’t cover everything. Typically, an umbrella policy in the insurance world, as probably most of you do know, gives you additional liability protection. But in most cases, it only gives you a liability protection over and above the coverages that you have in underlying policies. For instance, thinking of a contractor as an example, a contractor has not only the liability exposure of going out and doing work on a property, whether it be a plumber or electrician or what have you, but they also have the exposure of their vehicles as they’re traveling to and from work sites, for instance.
Well, an umbrella policy is a very cost-effective way to get additional liability coverage over and above those two types of exposure. So instead of, for instance, having half a million dollars of liability protection for the work that the contractor does, another half a million of liability protection for their vehicles, it may cost us, let’s just use a number, $1000 a year to get another half a million for a total of a million in each of those policies. Well, that contractor may be able to buy an umbrella policy for $750 to give $1 million of protection over and above those half a million dollars of underlying coverages. So a very cost effective way to get additional liability protection.
However, an umbrella policy typically doesn’t pick up additional coverages that those underlying policies cover. For instance, let’s go to the personal lines area of the insurance world. You may have a home, a couple of cars, and a boat. And if all of those coverages are combined with an umbrella policy, you’re fine. In other words, you have your auto insurance with one carrier, your home with the same carrier, and the boat insurance with the same insurance company. You can get an additional million dollars of liability protection in a very cost-effective manner.
But unless additional exposures are named if they’re not covered by the same underlying insurer, you may either, one, not have coverage or you may have the coverage albeit subject to a higher what’s called a self-insured retention. Kind of a fancy word for a deductible. In other words, you have a home, two cars, and your boat all insured with the same insurance company. Then you buy a motorcycle insured with a different insurance company. You may still have the liability protection afforded by the umbrella that I just mentioned. However, because the motorcycle wasn’t insured by the same insurance company, you may be subjected to a $10,000 self-insured retention in the event you have to use that umbrella in the course of that motorcycle having an incident that subjects you to a liability claim.
The point is, don’t think that buying an umbrella gives you coverage for everything. It typically gives you coverage over and above that which you have in the underlying insurance policies, especially subjected to your real estate investing business.
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