How Does Umbrella Insurance Work?

Landlords are strongly advised to have rental property insurance. You rent your property out to people you don’t know. Those people have guests you don’t know. Accidents happen. In this case, those accidents happen on your property. You had nothing to do with the accident, but since it occurred on property you own, you may have to pay the bill. Landlords are wise to have enough coverage to cover potential claims.

You may already have a landlord’s or rental insurance policy. But in same cases, that is not enough and you may need umbrella insurance too. In the sections below, we’ll discuss umbrella insurance and how it can protect you.

What Is Umbrella Insurance?

Umbrella insurance provides extra coverage in addition to what's covered by landlord insurance. For example, if a tenant has a party and one of their guests slips and falls, they could sue you. For this example, let’s say they win a $700,000 judgment against you. If your landlord insurance only covers $500,000, you’ll have to pay $200,000 out of your own pocket.

Umbrella insurance covers the extra $200,000 not covered by your landlord policy. Since umbrella insurance only covers what your primary policy doesn’t cover, the premiums are very low. 

Not only does umbrella insurance cover amounts above what your landlord policy covers, but it can also cover many issues your landlord policy might not cover, including court awards for:

  • Slander
  • Mental anguish
  • Medical costs

Umbrella insurance can also cover unusual conditions not covered in some landlord insurance policies, like damage caused by:

  • Riots
  • Volcanic eruptions
  • Explosions

What Does Landlord Insurance Cover?

You’re probably wondering what your landlord policy covers. It’s hard to know what umbrella insurance will do for you if you don’t know what the landlord policy covers. It’s a good idea to look at your landlord insurance policy documents now. 

What should your landlord policy cover? Do you have the best landlord policy for the premium you’re paying? 

Your landlord policy should cover:

  • Property damage
  • Liability
  • Loss of rental income

If a fire breaks out in your apartment building, landlord insurance protects you. You may be liable for tenants’ personal property that was destroyed in the fire. That would include the replacement costs of their destroyed televisions, computers, clothes, and anything else they own within each apartment. Your landlord policy may cover these issues. Of course, the policy will also pay your costs to repair your burned building.

If the fire injures a tenant, your landlord insurance may cover the cost of the healthcare for the tenant and some other costs related to the injury. While your building is being repaired, a landlord policy covers the income you lose from not having tenants. 

A good landlord insurance company will also provide options for extra coverage on your policy. This coverage may include:

  • Vandalism repair
  • Theft
  • Damage by looters

As you can see, landlord insurance covers a lot. But it leaves some gaps.

How Umbrella Complements Your Other Policies

Umbrella insurance isn’t only for when damages exceed your landlord policy. It can also cover excess damages over the limits on your auto insurance and homeowner’s policy. Insurers will usually require you to have the maximum coverage on these other policies before you can get umbrella coverage. This requirement is for making sure the umbrella policy is only covering the excess above what the primary policy covers.

Landlord insurance will only cover one property. For example, if you have three rental houses, you’ll need three landlord policies. If you have two buildings, each with multiple apartments, you’ll need two landlord policies. The good news is that you could have one umbrella policy to cover all these properties. Still, you’ll need to have primary insurance (landlord policy) for each property.

Difference Between Umbrella Insurance and Excess Liability Insurance

Umbrella insurance sounds like it’s the same as excess liability coverage. It is not. Excess liability is an add-on for your landlord policy. Like umbrella insurance, it covers damages that exceed the maximum damages for the landlord policy. Unlike umbrella coverage, excess liability won’t cover slander, volcanic eruptions, and car accidents.

All-Risk Policy Versus Named-Peril Policy

There are two kinds of umbrella insurance policies: all-risk policies and named-peril policies. Named-peril policies only cover the risks listed in the policy. All-risk policies, as the name implies, cover any risk unless the policy excludes it or it’s illegal for an insurance company to cover it. Of course, all-risk policies are more expensive since the insurance company takes a bigger risk with it.

It’s illegal for insurance to cover some acts. For example, insurance can’t cover the cost of a tenant’s medical bills from an injury where the landlord beat up the tenant for failure to pay rent. In this example, the law excludes coverage so as not to encourage criminal acts. 

Why Do Landlords Need Umbrella Insurance?

Landlords have much more liability exposure than other businesses. A shoe store or an accountant’s office have very little risk. If a customer falls in their store, the show store owner might be liable. But the customers are in the store for minutes. A landlord has tenants and their guests on the property 24/7/365. 

In the shoe store, the customers are under the constant supervision of the staff. For you, constant surveillance is an invasion of your tenants’ privacy. 

With so much risk, landlords need extra coverage for when your primary insurance doesn’t cover a claim. Otherwise, your passive income venture could lead to a financial catastrophe. 


Owning rental properties is a great investment. You earn money with very little effort. What could be better than that? The only drawback is the risky nature of the rental business. If not prepared, your great investment could lead to financial ruin. Unlike the stock market, you can lose more than you invest with rental properties.

There’s an easy way to eliminate the riskiness of owning rental properties. You need good landlord insurance and an umbrella policy that covers your gaps. Steadily is the best landlord insurance company in America. We also provide umbrella coverage for landlords. 

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