We have to pass the bill so that you can find out what’s in it.
This well-known line came out of the mouth of Speaker of the House Nancy Pelosi in 2010 while discussing the health care bill.
It is a kind of circular logic that just doesn’t make sense. You pass bills because you know what they say, how are you going to know how to vote if you don’t know what’s in it?
Dumb statements like this will happen if you put anyone in front of a camera long enough. Remove a few words from the original context and they take on a new meaning.
What she meant was the results of the bill won’t be known until passed (even if that’s not what she literally said). Meaning people will come to see that the worst-case scenarios of the opposition are not true.
My search for an umbrella insurance policy reminded me of this. I want a policy, but can’t read the actual contract until I sign up.
Wait, What?
A few weeks ago I wrote Defend Your Money – My Decision to Get an Umbrella Insurance Policy. It gets into why I started on this search. Basically extra protection against potential lawsuits from either rental properties or my family’s normal day-to-day life.
The logical place to start is with the insurance company I already have. I have Geico auto insurance, so asked them if they offer umbrella policies as well.
They do. Ok great, but the important question is whether my rental properties will be covered. Yetisaurus summed it up well in her comment on the previous article (she is a rental property investor and lawyer, so is very qualified to speak on this):
Check whether it’s a personal insurance policy or commercial policy. Be careful about taking your agent’s word for it. They’re often unsure of the distinction and may give you inaccurate info. (Mine did at my last policy renewal. Thankfully I knew better.) Read the policy yourself, very carefully, and/or talk to an attorney who does insurance defense work or a claims adjuster who you know and trust to make sure your policy is protecting you in the way you’re expecting.
When I asked the Geico agent if my rental properties were covered, he said yes and gave some additional details. Sounds good, but I shouldn’t just blindly trust that answer. I need to look at the fine print.
Turns out I can’t read the policy details without signing up for the policy first. Then a couple business days later they will both email and physically mail it to me.
I Said: Sign Me Up!
Why did I agree to sign up? I’m not sure if it covers what I want it to cover, but I went forward with it anyway.
The worst case scenario isn’t bad.
If I find out the policy sucks, I can cancel. They will issue a refund for everything except the days I was covered.
So I’m not really risking anything other than a couple dollars to sign up, then read the policy details.
It is very backwards, but oh well.
The Details I Do Know
The agent said for someone living in California, I can have a maximum of 4 rentals (they can be out-of-state) before they have to refer me to another insurance carrier. It is vital that my insurance is up to date and correct wherever I am, just like the auto industries trade policy car insurance arrangements, I need to be assured I am doing all that I can for my car.
The properties have to be in my own name, not an LLC or other business entity.
I also have to increase my auto insurance coverage. My coverage limits have to be $100k / $300k.
Geico offers a 10% discount on auto insurance when you have an umbrella policy. Let’s drill down into the numbers.
Before my wife and I were paying $1550 a year for $50k / $100k auto coverage. Increasing it to $100k / $300k is an extra $60 a year. With the 10% discount for an umbrella policy, it comes to $1450 a year. So more coverage for $100 less!
The umbrella policy quotes were $207 ($1 million), $342 ($2 million), $497 ($3 million). I signed up for $1 million in coverage.
The net is only an extra $107 a year for better auto coverage and a million dollar insurance policy! Sounds pretty good if it covers what I hope it does…
Side note: I was a little surprised by the price for larger umbrella policies. I expected a much steeper drop off in price. Consider I doubled my auto coverage limits for a 4% increase in price. Doubling the umbrella policy coverage increases the price 65%!
My discovery should inspire everyone to strive for cheaper auto insurance! There most definitely are options out there, and by looking through car insurance quotes, you’ll be able to find cheaper options, with or without an umbrella policy.
Easy Peasy
It was cheap and easy to get umbrella insurance coverage through my auto insurance company. Had I known this earlier, I would have signed up a long time ago! I only came to the conclusion that this was the best route for me to take after thoroughly researching all the different options that were available to me. I spent quite a long time looking at the different types of insurance reviews from Truly Insurance before making my final decision. They had some really good advice on there but I personally felt that the umbrella insurance coverage was the best option for me.
However, the work isn’t done if the policy documents don’t match what the agent told me. More on this to come.
What do you think, are those prices surprising to you? Do you think I’m in for a surprise when the policy document arrives?
Standard insurance for all my rentals already has $1 million per incident. Actually, I couldn’t find anything less.
I think the umbrella is cheap because the likelihood of a single incident getting over $1 mil and causing the umbrella to kick in is very low.
I think larger policies go up so fast because when there is a large pay out that an umbrella kicks in for, it’s highly likely to go way over $1 mil.
Ya that was what I was thinking – if there is something that happens, it will be big!
Hi Brian
Thanks for sharing your experiences going after the umbrella policy. Like you mentioned, once you get above 4 rentals then you will need to seek insurance outside of your personal property/auto insurance. At that point, it really makes sense to have an umbrella policy to protect your personal assets from those of your business. The rates you have are pretty comparable to what we have also. Paying ~ $300/year for $1M of coverage is a bargain in my book!
happy new year
I think that is why they cap it at 4 – over that it will be considered a business, which will need to be covered by a different policy. I’ll deal with it when I get there!
Happy New Year to you as well!
Hey Brian! That is weird that they won’t let you see the policy first. But I think your approach is smart. It’s not that much money (hopefully) to be insured for a short while, and it will let you look at the policy docs. It’s weird that there’s no free rescission period if they won’t give you the documents first, but maybe nobody has litigated that issue yet.
Keep an eye out for the business pursuits exclusion. Even if they tell you that you can have up to four rentals and still get coverage, they may still try to deny you if a claim arises based on language excluding business pursuits. Good luck, and I’m interested to see what you find out!
Thanks for the mention, too! 🙂 I’ve been taking some time off from the blog for personal reasons, but hopefully will fire it up again soon.
I noticed you haven’t posted in a while. Looking forward to it coming back!
I’ll be sure to read the business pursuits section carefully. I bet it is too vague to give much of an idea, but hopefully it specifically calls out rental properties.
As a landlord, it’s definitely worth getting an Umbrella. Anything can happen. Not expensive, and totally worth it. I’ve got an umbrella that covers at least 100% the value of all my properties. But property is about 40% of my net worth, so I think I need to get more.
Sam
Glad to hear you went that route too. You are in California – did you end up moving your rentals to an LLC when you moved out? Many investors outside of CA do this for a little extra protection, but it is a little pricey here.
Interesting. I’m looking into getting umbrella insurance as well and will probably get it through Geico since I have homeowner’s insurance and auto insurance with them . The price is pretty affordable so it might be worth it to cover your other assets whether or not it covers rental properties. Of course I would definitely hope that it does cover rental properties as I have one as well and hope to add more. Keep us updated about what you find when you see the policy!
Great timing, I actually just posted an update: https://rentalmindset.com/rental-property-umbrella-insurance-la-la-land/
The Geico umbrella policy seems like a pretty good deal with the 10% discount they give on auto coverage. Go for it!