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Understanding Your Umbrella Coverage Could Save You Thousands In Annual Insurance Costs

If your company leases office space, you could be overpaying in insurance costs.

While umbrella insurance coverage is commonly included in a lease agreement, you don’t need to blindly accept the coverages requested by the landlord. Understanding the insurance requirements outlined in your lease and coming to a mutually beneficial agreement about the coverages your company will carry could save you thousands of dollars every year. That could add up to a significant chunk of change over the life of your lease!

If your agreement includes wording such as “Pay on behalf of”, for example, you may be agreeing to insurance claims being paid directly to your landlord.

This saves your landlord out of pocket expenses but you carry the burden of cost. As mentioned in previous blog posts, a landlord will often slip expenses into the lease agreement to avoid having to pay higher outputs himself. If he can get a tenant to pay high level insurance coverage costs for him, he probably will.

Your landlord may also include verbiage like “additional insured” in your lease.

The additional insured might include the landlord, his employees, managers, affiliates, and anyone else he chooses to name. His eccentric Aunt Ethel probably doesn’t need to be included here. That may seem funny, but you may be surprised at the “others” who end up in these agreements! Pay attention and don’t assume anything.

You may receive a rude awakening if you find your company in the precarious position of having to file a claim and the reality that your umbrella insurance agreement includes a “waiver of subrogation” in favor of the landlord.

In this case, your landlord’s losses are the priority and your company will only receive a payout to cover its losses if there is enough left over after his losses are taken care of.

In addition, umbrella coverage will often carry hefty minimum limits for aggregate and per occurrence coverage.

For example, the standard landlord agreement may be $5 million for each when $2 million aggregate and $1 million per occurrence is adequate.

Simply put, don’t pay for insurance coverage you don’t need, be sure you are covered first and that any potential claims will be filtered through your company to cover your losses and costs incurred.

At Oxford Partners, we typically suggest $1 million per occurrence and $2 million aggregate as a sufficient safety net. However, every tenant and situation is different. We encourage you to give us a call to discuss your options and current market trends before making a move.

 

Looking to move or expand your space? Contact Ryan Hartsell with questions or assistance to
purchase or lease commercial real estate in and around the Houston, Texas area.