Commercial umbrella insurance is a type of policy that a business can acquire to supplement existing liability insurance policies. The purpose of an umbrella policy is to protect your business in the event of a lawsuit that exceeds the limits of your primary liability insurance policies.
Simply put, commercial umbrella insurance is the ultimate safeguard for your business. Yes, a standard commercial liability policy should be able to sufficiently protect your company in the case of an unexpected lawsuit — but every policy has a limit. If your business comes face-to-face with a multi-million dollar lawsuit, your umbrella policy will swoop in and save the day.
Instead of pursuing umbrella insurance, some businesses opt to increase the limits of their existing liability policies. While this approach is a valid option, it doesn’t match the level of flexibility offered by an umbrella policy, which can transcend the barriers of individual liability policies.
That said, it’s important to keep in mind that commercial umbrella insurance cannot supplement every type of policy. Typically, umbrella insurance is able to supplement general, auto and employer liability, but not errors and omissions, liquor liability, workers’ comp or other employment-related coverage.
When selecting a commercial umbrella insurance policy, it’s important to understand what your aggregate limits will be and how they’ll impact your other insurance policies. For instance, some commercial umbrella policies are structured in a way that forces their aggregate limits upon the underlying policies.
It’s also important that you know exactly what perils your umbrella policy will cover, and how it will treat the limits of your existing insurance policies. Some may only recognize an underlying policy as having its limits exhausted if the specific claim is also covered by the umbrella policy. In these cases, you’ll want to make sure the perils covered by your umbrella policy and your other policies match up.
Excess liability insurance, a popular alternative to commercial umbrella insurance, is also designed to provide coverage in the event that you exceed the limits of an underlying insurance policy.
The main difference between these two types of insurance is simply that umbrella policies offer broader coverage. Umbrella policies tend to expand your coverage in ways that aren’t possible with the underlying policy alone, while excess liability policies restrict your coverage to the specific terms of the underlying policy.
Too many entrepreneurs have totally overlooked commercial umbrella insurance, and to be fair, it really isn’t necessary for every single small business out there. However, depending on the risk factors your company faces on a day-to-day basis, it could end up being a real lifesaver.
Generally, umbrella insurance can be acquired quite cheaply — for instance, $1 million in coverage typically costs only a few hundred dollars per year. That being said, we’d discourage you from jumping on the first policy that fits within your budget. Before committing, make sure you understand the policy’s terms in detail, and that it offers the amount of coverage you need to effectively protect your business.