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Umbrella Insurance
An additional liability insurance policy that provides coverage beyond the limits of your standard property insurance.
Definition
Umbrella insurance is a supplemental liability policy that kicks in when the limits of your underlying property or auto insurance are exhausted. For example, if your property insurance covers up to $500,000 in liability and you face a $1 million judgment, a $1 million umbrella policy would cover the gap. Umbrella policies are relatively inexpensive — often $200-$400 per year for $1 million in coverage — making them one of the most cost-effective asset protection tools available. Most insurance advisors recommend that real estate investors carry umbrella coverage equal to or greater than their net worth. Umbrella insurance works alongside (not as a replacement for) proper entity structuring.
Related Terms
Asset Protection
Legal strategies to shield personal assets from lawsuits, creditors, and liabilities arising from investment properties.
Liability
Legal responsibility for debts, damages, or obligations that may arise from owning or managing property.
LLC
A Limited Liability Company — a business structure that separates personal assets from investment property liability.
Due Diligence
The investigation and analysis an investor conducts before purchasing a property to verify all material facts.
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