If you own a business, you might be looking at buying a number of commercial insurance policies. There could be specific coverage amounts you need because of an agreement with investors, your landlord, or other entity. You might also want to buy umbrella insurance as a way to save money on your overall insurance coverage, and for this reason, and many more, it can be a great addition to your total commercial insurance package.
When you buy umbrella insurance for your business, you are essentially buying additional liability coverage that will go beyond the limits of your existing policies. It gives you extra coverage in the event you are sued, and the amount of coverage on your standard liability policies does not cover the amount that is needed to be paid out.
Almost any type of business can benefit from buying umbrella insurance. Regardless of your management, business processes, or the high standards of your employees, sometimes accidents and mistakes can happen. If you encounter a lawsuit that goes beyond the limits of your existing liability policy, this type of insurance can prevent severe financial stress on your business and its assets. Umbrella insurance could be a requirement that is imposed on you by a client, supplier, or landlord.
Buying commercial umbrella insurance is essentially a form of risk management for your business. The contents of this guide should help you decide whether or not it is suitable for your business, and if the coverage provided is relevant to your specific business operations and areas of exposure.
Just as its name suggests, Umbrella Insurance is a broad level of insurance that can protect your business from a range of liabilities that may threaten its future financial stability. This coverage will extend and work over numerous other liability policies, and it comes into force should one of those policies reach or max-out its limit.
In addition to this, it can also be used to fill in some of the gaps in coverage that other policies do not offer. Perhaps one of the most valuable benefits of commercial umbrella insurance is that it will allow your business to access increased limits, giving better protection from risk, at an affordable cost. Here are some of the core benefits that commercial umbrella insurance coverage can provide you with protection against.
One of the most appealing aspects of this type of coverage is its simplicity. With just one additional premium, you can drastically reduce your risk across a broad range of liabilities, and a large number of your business activities.
A commercial umbrella policy can also be activated to cover any losses or damage that are not covered under a primary liability policy. In insurance terms, the umbrella insurance policy will ‘drop-down’ and act as the primary insurance for the specific liability in question.
A few pertinent examples of instances in business where this could be used; is when there is an exclusion from a general liability policy, such as with advertising liability, aircraft, and non-owned watercraft. In this instance, there will be a self-insured retention or a deductible that will need to be paid first before any coverage kicks-in.
Standard commercial insurance limitations could leave you financially exposed, particularly in the event of a significant lawsuit that exceeds your coverage limits. In the event your policy limit gets maxed out, it is up to the policyholder to sell assets or fund the additional payment out of their own pocket. In some cases, this can force a company to declare bankruptcy.
If your company is looking to get finance in place or involve investors, they may ask you to buy a number of insurance policies at an agreed dollar level of coverage. Not all liability policies will give you the ability to extend those limits, and for the ones that do, it could mean a significant hike in your premiums. Landlords often place the same requirements on their tenants.
If you compare raising the limits on your individual business liability policies with buying umbrella insurance, then you will quickly see a cost-benefit to choosing to purchase umbrella insurance for your business. If you increase any of your individual policy limits, then your premiums will also increase. However, with umbrella insurance, you will benefit from the extra coverage without needing to change your existing insurance premiums. In almost all cases, you can buy your business umbrella insurance in increments of $1 million, and this comes with the added peace of mind that you have adequate coverage in place should your business face a significant lawsuit.
A commercial umbrella insurance policy covers a range of other liability policies by acting as a broad layer of protection, which extends the limits placed on those primary policies.
In most cases, you will need to have a primary commercial liability policy in place first. However, there are a number of cases where commercial umbrella insurance will step into to cover some liabilities that are excluded from your current policies. The coverage from an umbrella policy has what is known as an aggregate limit, which will often range from $1-$5 Million; in some instances, this can be extended. For this reason, the cover provided by a commercial umbrella insurance policy will only cover claims up to the agreed limitation amount.
Please note, that umbrella insurance will not cover every type of liability, and there are certain types of liability coverage that it will not extend. We’ll cover this in the next sections.
Commercial Umbrella Insurance can cover liability claims and lawsuits that do not result in any legal action. Your primary liability insurance will meet any connected costs of a claim, up to your policy limits. However, if the person who filed the lawsuit is awarded more than the limits of that policy, this is when umbrella insurance can step in to help cover the remaining cost of the lawsuit.
Protecting the company assets against any lawsuits is a primary reason people buy commercial umbrella insurance.
As the landlord of a property, you are accountable for ensuring your property is safe for your tenants or any guests. There are a number of ways an umbrella insurance policy can help to protect a landlord.
If you are a landlord, buying commercial umbrella insurance could be a sound investment, especially if you have a substantial net-worth that you want to safeguard from any lawsuits.
The first and most important aspect of commercial umbrella insurance coverage is that you should have a primary insurance policy in place; without that underlying policy, you might not get the coverage you need. Perhaps one of the biggest underestimations of people regarding umbrella insurance is that it will cover anything that isn’t covered by another insurance policy, and that just isn’t the case.
Even when you have other commercial insurance policies in place, there are a number of examples whereby umbrella insurance might not give you the coverage you need. The majority of commercial umbrella insurance policies will not provide you with coverage for professional liability, worker’s compensation, employment practices liability, product recalls, war and terrorism, and/or asbestos-related claims.
The limits of your commercial umbrella policy should be determined by the nature of your company. For instance, there are specific sectors that are connected to severe losses, such as pharmaceutical companies, hotels, Lawyers, or Doctors. If you belong to a business that could suffer a catastrophic loss, you will need to buy commercial umbrella insurance with a higher limit than a retail store, for example.
The best way to make sure you buy the right amount of commercial umbrella insurance is to speak directly with a commercial insurance agent. If you are about to renew or buy any other type of commercial insurance, they might also be able to save money on your overall insurance costs too.
A commercial umbrella policy is sold with a minimum coverage level of $1 million. However, the upper-limits of a policy could be anything between $5-$10 million. For most businesses, the decision in how much coverage to buy is not just relative to the company assets. The liability totals can quickly add-up should an event occur. If multiple people sustain injuries, it isn’t just the cost of the medical treatment that needs to be considered; there is also the missed wages, the projected future costs of any medical care, along with any accommodations that could be required with a remodel of a home in order to accommodate that person’s injuries too. In this instance, $1 million in coverage could quite easily be exceeded.
For most people, buying a commercial umbrella insurance policy is a contractual requirement. When there is a contract that requests a higher limit than your standard limits, this type of coverage is the most cost-effective way to meet those requirements. For instance, if a client requires you to have a general liability policy with $4 million worth of coverage, and your current business general liability policy has a $1 million limit, buying an umbrella insurance policy for your company will top up your limits to the required level.
Umbrella insurance could supplement the liability coverage of employer’s liability insurance, general liability insurance, and/or commercial auto insurance. Before you can buy a business umbrella policy, you will be asked to carry a minimum of $1 million in coverage on any of the underlying policies.
The types of companies who need an umbrella insurance policy include:
The cost of commercial umbrella insurance will vary depending on the limits, the number of employees in your business, your annual revenue, the carrier, and the coverages you buy. The individual risks that a company is exposed to can also impact the cost of umbrella insurance as well. For $1 million worth of coverage, the price of a policy can range from between $200-$2500, with an average premium of approximately $900-$1500.
As you can appreciate, there is a big difference in the upper and lower premium. Another factor that can impact the cost of buying commercial umbrella insurance is the number of underlying insurance policies. For example, the higher the number of policies that are covered by your umbrella insurance, the higher the likelihood that you will need to use it.
There are many situations where the terms ‘umbrella liability’ and ‘excess liability’ are used interchangeably. Although they will both take care of additional coverage needs for at least a single underlying commercial liability insurance policy, there are critical differences between the two.
When you buy umbrella insurance, you will need to pay for something called a ‘SIR.’ This is a pre-set amount that you will need to cover before your umbrella insurance will payout. Commercial umbrella coverage can also apply to multiple underlying insurance policies. In contrast, there is no requirement for a SIR to be paid when you buy excess liability coverage but an excess liability policy will only provide coverage for a single underlying insurance policy.
Although both are important in helping businesses to cover losses that extend beyond the limits of an existing liability policy, there are key differences that need to be considered before you make a decision to buy either or both of these commercial insurance policies.
A general liability insurance policy provides coverage for a broad range of general exposures to liability losses that could be faced by a business. More importantly, a business general liability policy forms the foundations for the majority of the other types of liability coverage. It is often referred to as the first line of defense in the event of any third-party claim or lawsuit that is made against the policyholder. On the other hand, umbrella liability insurance is designed to activate only when the limit on an underlying policy is exhausted or it does not cover the loss.
You cannot buy commercial umbrella insurance without first having a general liability policy in place.
If you are trying to weigh up the pros and cons of buying commercial umbrella insurance, we hope you’ve been able to find the answer you need in this guide. We have tried to include all of the frequently asked questions about commercial umbrella vs. excess liability, general liability, and more.
If you want to know an exact cost of coverage for your business or you are now ready to get quotes for commercial umbrella insurance, your next step should be to contact a commercial insurance expert. They can help you choose the most appropriate level of coverage for your company and answer any remaining questions you may have at this stage.