What is Commercial Umbrella Insurance?

What Is Commercial Umbrella Insurance?

Commercial Umbrella Insurance—sometimes referred to as Umbrella Liability Insurance—supplements the limits of an insured’s underlying policies such as General Liability Insurance, Commercial Auto Insurance, Workers' Compensation Insurance, and Employer’s Liability Insurance. 

An umbrella liability policy can also protect a business from gaps in existing coverage and sometimes exclusions written into the primary liability policy. In simple terms, an umbrella policy can issue a payout when other insurance policy limits have been reached.

How Does Umbrella Liability Insurance Work?

Example #1: Your general liability insurance policy has a $1,000,000 limit. You’ve been mandated to pay an award of $1.25 million to someone who has filed a claim against you. Your general liability policy will pay out the million dollars, and then your commercial umbrella policy will pay out the $250,000 shortfall, protecting your business assets from lien or liquidation. It is important to remember that a commercial umbrella is used to add protection to underlying policies—it is NOT a replacement.

Example #2: You’ve obtained Employment Practices Liability Insurance (EPLI), which is known for covering business owners against accusations of discrimination, sexual abuse, wrongful termination, etc. But it can also cover the business owner if they’re sued because an employee doesn’t believe their workers’ compensation has provided enough coverage. If the EPLI doesn’t extend coverage, commercial umbrella coverage can step in. 

How is it Different from Personal Umbrella Insurance?

Commercial umbrella insurance provides extended coverage for employer’s liability, general liability insurance, commercial auto, and workers' compensation—whereas personal umbrella liability insurance provides extended coverage for an individual's:

• Homeowners insurance
• Auto insurance
• Watercraft insurance

Who Needs Umbrella Liability Insurance?

• If your business operates on someone else’s property: For example, you own a small business painting the exteriors of houses. Because there is an increased risk of property damage to their home, it puts you at an increased risk of surpassing the limits of your liability policy.
• If customers or clients are frequently on your property: Business owners recognize the necessity of general liability insurance but don't always realize that the increased traffic in a store or retail space can increase the number of claims or potential for greater losses.
• You own a small business in an industry with an increased risk of your employees being injured: If an employee is injured and your workers' compensation insurance isn't sufficient, you and your business can be held liable for any remaining money the courts award them.

Do I Need Commercial Umbrella Insurance?

The first reason to consider umbrella insurance is due to cost: Commercial umbrella liability coverage can increase the potential coverage of several policies—by a substantial dollar amount—for a reasonable cost. Comparatively speaking, it can be more affordable than paying to increase the individual policy’s liability coverage to the same threshold. This can help a business owner control costs while maximizing protection.

Secondly, sometimes you are required to increase the limits of your coverage to fulfill a contract requirement. For example, your construction business is being considered for a large project. However, you are required to increase your liability limits from $1 million to $5 million. Adding a commercial umbrella policy to your primary policy is an easy way to fulfill the contract requirement.

Lastly, umbrella insurance can be purchased to cover any exclusions or gaps in your existing insurance policies. If that is the primary objective of purchasing the additional coverage, make sure the umbrella policy doesn’t exclude the same gaps. 

How to Determine How Much Additional Insurance Coverage is Necessary

We recommend taking the time to determine what types of claims are made in your industry and what awards are generally given in a lawsuit if your business is found at fault. If you belong to an industry association, check with them as well. They can be a great resource for additional information. 

In many cases, the initial protection will cover most scenarios. However, your research may indicate a commercial umbrella policy will manage the higher end damage awards and protect the assets and financial solvency of the business in the event of a large claim and award.

But how much additional coverage does your business need? 

Several factors come into play when considering whether or not umbrella liability coverage is a good investment for your particular business and where it can be most beneficial in your risk management plan.

• The average cost of damages: Different fields have different risks; investigating your segment’s typical court case can help you identify the amount of coverage you need.
• The necessity of staff: One response to unexpected cost, when underinsured, is for businesses to cut staff or expenses. If you run close to the line every month–or can’t afford to do without any of your team–the extra cost of an Umbrella policy could be well worth it.
• The type, location, and size of business: All three of these will affect your need for umbrella insurance, and also the cost of it.

Your licensed insurance professional can guide you in developing a commercial umbrella policy and how it will work in protecting your business and its assets.

What is Not Covered by Umbrella Insurance?

Commercial umbrella insurance cannot be provided as additional coverage for a professional liability policy. It will also not cover you in the case of punitive damages, product recalls, pollution, data breaches, and aircraft or watercraft. 

How Much Does Commercial Umbrella Insurance Cost?

There are quite a few variables that impact the cost of commercial umbrella insurance:

• How much additional coverage do you need? $1 million? $5 million?
• How many employees do you have?
• What industry do you operate your small business in?
• Is there an increased risk of property damage or third-party bodily injury in your business?

These are just a few of the factors that impact how insurance companies price umbrella liability policies.

Get a Free Commercial Umbrella Insurance Quote

It’s important to note that Umbrella coverage is an extension of liability insurance, but there may be instances when there are limits. Nothing replaces speaking with a professional who can answer questions about your specific business and insurance needs.

If you'd like help finding out what your specific needs are, you can complete the form above to start the process of getting a competitive, free quote for several types of business insurance—including commercial umbrella policies—or you can call 1-877-907-5267 to speak with one of our specialists.