Author Topic: commercial liability umbrella for owner-occupied triplex?  (Read 771 times)

mitchm

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commercial liability umbrella for owner-occupied triplex?
« on: January 08, 2024, 10:26:03 PM »
So, situation is a bit strange (or maybe not...I'm new to all this):

I purchased a triplex and have two of the units rented and live in the third. Because the building is very old, California insurance dysfunction, etc. etc. the most cost effective way to get it insured was via a commercial landlord policy.

When I tried to purchase a personal umbrella on top of the commercial landlord policy, I was told by multiple carriers that to get a personal umbrella I need to first have personal "worldwide/premise" liability and that the commercial general liability coverage included with my landlord policy doesn't fulfill that requirement. So, I'm wondering if anyone has any experience with or thoughts re: whether I should pursue a commercial umbrella policy rather than a personal. Aside from auto insurance, where I have just increased my coverage significantly, I can't really envision a scenario where I would be exposed to significant liability ASIDE from the rental properties...

For context, my only other assets beside the equity in the house (700K) are about 200K in index funds, half in a Roth 403B and half in a brokerage account. My current liability coverage under the landlord policy is below:

General Aggregate Limit 2 million

Products Completed Options Aggregate Limit 2 million

Each Occurrence Limit 1 million

Damage to Remises Rented to You limit $1000,000 any one premise

Medical Expense Limit $5,000 any one person

Personal and Advertising Injury Limit $1 million any one person or organization

franklin4

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Re: commercial liability umbrella for owner-occupied triplex?
« Reply #1 on: January 09, 2024, 09:53:54 AM »
This thread about umbrella insurance included some good discussion:
https://forum.mrmoneymustache.com/welcome-to-the-forum/umbrella-insurance-119082/msg2859864/#msg2859864

Of your coverage, the 5k medical limit seems lower than it should be. I don't know what type of claim is most likely but it seems like one concerning a tenant injury would be right up there. It would not take much of an injury to blow past 5k.

merula

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Re: commercial liability umbrella for owner-occupied triplex?
« Reply #2 on: January 09, 2024, 11:46:08 AM »
I've worked in Property & Casualty insurance for nearly 20 years, and my specialty is commercial liability.

You'll need a commercial umbrella to sit over a commercial primary policy. This will likely be significantly more expensive than a personal umbrella (like, $1k-2k for the first $1M of coverage), but maybe the savings from the primary policy would make that the best option.

Are you an insured on the landlord's policy as an individual, or do you have a business name that owns the building? If you've got an LLC or something, that protects your personal assets, so you may not even need an umbrella, although you might want to buy a renters policy for yourself.

I would talk to a tax lawyer or a really solid independent insurance agent. (Independent meaning works with multiple insurance companies, not Allstate, American Family, Farmers, State Farm, etc.) One thing I see fairly frequently in my job is that the owner of a business (say, ABC Co.) will buy the real estate under a different name (123 Main LLC), and then 123 Main will rent the space to ABC Co, and they set the rent at whatever minimizes the overall taxes. (This set up causes a huge headache for the insurance folks, but everyone tells me it's worth it.)

This thread about umbrella insurance included some good discussion:
https://forum.mrmoneymustache.com/welcome-to-the-forum/umbrella-insurance-119082/msg2859864/#msg2859864

Of your coverage, the 5k medical limit seems lower than it should be. I don't know what type of claim is most likely but it seems like one concerning a tenant injury would be right up there. It would not take much of an injury to blow past 5k.

This part of a Commercial General Liability policy is about paying for medical expenses that you may or may not be liable for. If someone falls on your sidewalk because you didn't address a crack, you're liable and that's covered for your liability up to the Occurrence limit, but if someone falls on your sidewalk because they dropped something they were carrying and then tripped over it, you're not liable and neither you nor the insurer have to pay. The catch is, for small claims, it's not always worth trying to figure out the liability to make them go away, so in this case someone who alleged that they fell on your property could get up to $5k in medical expenses without proving liability. Larger claims are still covered, as long as you're liable.

mitchm

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Re: commercial liability umbrella for owner-occupied triplex?
« Reply #3 on: January 15, 2024, 10:25:15 PM »
Thank you both! I own the property in my own name/not an LLC, but I did recently talk to a different insurance agent who was recommended to me and he seems to think I don't need a commercial liability policy given my low net worth. I will be getting renter's insurance to cover my personal belongings, however.

GilesMM

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Re: commercial liability umbrella for owner-occupied triplex?
« Reply #4 on: January 15, 2024, 11:23:40 PM »
$1 million already provided under your current policy is plenty for anyone.  The $5k medical is way too low. Not sure what to make of that.

merula

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Re: commercial liability umbrella for owner-occupied triplex?
« Reply #5 on: January 16, 2024, 12:34:31 PM »
Thank you both! I own the property in my own name/not an LLC, but I did recently talk to a different insurance agent who was recommended to me and he seems to think I don't need a commercial liability policy given my low net worth. I will be getting renter's insurance to cover my personal belongings, however.

Commercial General Liability Policy, or a Commercial Umbrella Liability Policy? Agree on the Umbrella, but you should definitely have commercial General Liability coverage as the liability on a Renter's policy is likely to have some limitations where the expectation is that the Landlord's policy would apply. (Although, if you get in writing from your agent that they say don't buy Commercial General Liability, keep that forever as it will help you make a claim against their Agent's Errors & Omissions policy if something went really wrong.)

$1 million already provided under your current policy is plenty for anyone.  The $5k medical is way too low. Not sure what to make of that.

Quote
This part of a Commercial General Liability policy is about paying for medical expenses that you may or may not be liable for. If someone falls on your sidewalk because you didn't address a crack, you're liable and that's covered for your liability up to the Occurrence limit, but if someone falls on your sidewalk because they dropped something they were carrying and then tripped over it, you're not liable and neither you nor the insurer have to pay. The catch is, for small claims, it's not always worth trying to figure out the liability to make them go away, so in this case someone who alleged that they fell on your property could get up to $5k in medical expenses without proving liability. Larger claims are still covered, as long as you're liable.