SAFEGUARDS

New BusinessSAFEGUARDS

  • Back to quick summary
  • Commercial Umbrella Insurance: What You Need to Know

    Game Plan

    In-Depth

    Commercial Umbrella Insurance: What Is It? Do You Need It?

    The term “umbrella insurance” is a good descriptor—it’s a broad type of coverage used to protect your business from liabilities that threaten its financial stability. This insurance extends over other policies to provide additional coverage when certain kinds of underlying policies have reached their limits. It also can kick in to fill in gaps that other policies don’t cover. Thus, it’s an umbrella and an added layer of protection.

    It’s this “layering” that makes it especially important for business owners: It can give you access to higher limits of protection from risks, at an affordable rate.

    Increased financial protection from unexpected risks
    Even if your business is already covered under a General Liability Insurance policy, you might face a legal judgment or settlement—or a costly repair—that exceeds your coverage limit under that policy. Just as an example, say you carry $1 million in General Liability and are required to pay out $2 million for a judgment resulting from an accident that took place at your company. If you carried a $1 million Umbrella policy, it would cover what your General Liability didn’t—saving you from having to pay those funds out of pocket, or selling off assets to cover the difference.

    Easily expands coverage limits
    What makes an umbrella policy particularly attractive to business owners is its simplicity. For one single premium, you’re expanding your coverage limits over a broad risk territory. It stretches over many of your business activities, protecting your business and your employees while they’re working.

    May cover additional liabilities not covered by other policies
    Many umbrella policies may kick in to cover damage or losses that aren’t covered by a primary policy like General Liability, acting as first-dollar coverage. In the language of insurers, the policy “drops down” to cover the liability as the primary insurance. This typically occurs with coverages excluded from a standard General Liability policy; some examples of this kind of coverage are non-owned watercraft and aircraft, and advertising liability.

    Under these scenarios, many umbrella policies will include a deductible or self-insured retention that you would need to meet first for those losses not covered under your other policies, including General Liability.

    Game PlanGame Plan

    Game Plan

    • As with any risk protection strategy, you first need to evaluate the risks faced by your business. You should consider factors such as how much contact your business has with the public—and the potential for lawsuits. This “contact” includes not just customers but also suppliers, partners, and other associates. Do you have a lot of employees? If yes, then you have many points of contact with the public.
    • If you operate a professional services business like a law firm or a medical practice, keep in mind that Commercial Umbrella Insurance will not apply in situations where malpractice or other professional liability coverage would be called for.
    • Your business insurance professional will be able to help you determine which limit option of umbrella insurance is appropriate for the size and type of your business enterprise. The rate you’re quoted will be based on your business’ risk exposures.
    • If you decide to take out an umbrella policy, make sure that it is concurrent with your primary policies—that they cover the same time periods.