Don't Let One Incident Wipe Out Your Business: Benefits of Commercial Umbrella Insurance

Can your insurance cover a catastrophic event that exceeds its policy limits?

As a leader, you invest time, money and effort into building your business. And you take steps to protect it, such as purchasing commercial general liability, property, commercial auto and workers’ compensation insurance, but is it enough?

One unexpected incident or severe injury can cause a significant financial loss and even wipe out an entire business. That’s where a commercial umbrella policy comes in.

Read on to discover how commercial umbrella insurance coverage can provide an additional layer of protection from the worst-case scenarios to prevent your business from going under in the event of a severe incident.

What is commercial umbrella insurance?

Commercial umbrella insurance is a type of liability insurance that provides additional limits above other existing policies, such as general liability, auto liability and workers’ compensation insurance. This policy is an additional insurance coverage limit that applies after the limits of the underlying scheduled policies have been exhausted.

The key difference between an umbrella liability policy and other liability insurance policies is that they provide broader coverage and higher limits, often several million dollars. Umbrella insurance policies are a cost-effective way to manage risks and safeguard your business’s financial future.

Isn’t umbrella insurance the same as excess liability insurance?

Let me clarify a common misconception: people often interchange excess liability insurance and umbrella insurance, but they are two different things.

Excess liability insurance adds coverage to just one specific line or more than one policy line, typically general liability insurance, while umbrella insurance extends coverage across multiple policies.

So, why does this matter? Umbrella insurance protects you beyond each policy’s limits if you have multiple insurance policies. This can be a lifesaver if you ever face a major suit.

To sum it up, excess liability insurance is an excellent option if you only need to add extra coverage to one policy, while umbrella insurance is the way to go if you want to extend your coverage across multiple policies. Carefully consider your needs and choose the option that makes the most sense for you.

(Also read: Commercial Insurance Made Easy: Working with a Broker Who Speaks Your Language)

Which policies can benefit from an umbrella?

Let’s look at some insurance policies that could benefit from this added protection.

General liability insurance covers many liability claims, including bodily injury and property damage caused by clients or customers. It can also protect you from copyright infringement, reputational harm and advertising injury.

Commercial auto insurance is necessary if you use cars, trucks or vans for business purposes. Personal auto insurance policies typically don’t cover business vehicles, so commercial auto insurance is crucial. And with commercial umbrella insurance, you can extend your liability coverage even further.

Hired and non-owned auto liability insurance is another policy that could benefit from the added protection of commercial umbrella insurance. This type of policy covers liability for employees who use their own vehicles for business purposes. A hired and non-owned auto liability policy is a must when renting a car for work or driving your personal vehicle.

So, to answer the question, when should you add commercial umbrella insurance? If you have any of these policies, it’s definitely worth considering.

What does commercial umbrella insurance cover?

Businesses get umbrella coverage to protect themselves from catastrophic events that can be financially devastating. It provides small businesses with an extra layer of financial protection against liability claims, including bodily injury, property damage and legal fees.

For example, let’s say a customer slips and falls on your premises, causing a severe injury. You may only have coverage provided for up to a certain amount of medical expenses. If damages exceed that limit, an umbrella policy can kick in to cover the rest.

But umbrella policies do have exclusions and limitations. It’s important to know that commercial umbrella insurance doesn’t always cover everything, like malpractice claims against doctors or professional liability claims against CPAs. Small business owners and CFOs must carefully review their commercial umbrella policies with their insurance broker to ensure they have the appropriate coverage for their specific risks and liabilities.

Why do I need a commercial umbrella policy?

Let’s face it—accidents happen, and sometimes standard liability policies aren’t enough to cover the costs. While you may already have various insurance policies, an umbrella liability insurance policy gives you the extra coverage you need to keep your business afloat in case of legal action.

For instance, if your general liability policy has a limit of $1 million, but you get sued by an injured customer for $2 million in damages and legal expenses, your umbrella policy would cover the additional $1 million. Without umbrella coverage, you’d have to pay the remaining costs out of your pocket—a situation that could spell disaster for your business.

And that’s just one benefit of umbrella insurance; it can also protect your personal assets in a court case. For example, a plaintiff could pursue assets like your home or savings without it.

Commercial umbrella insurance costs vary depending on your business size and coverage needs. To get an accurate estimate, speak with an insurance broker. On average, a $1 million commercial business umbrella coverage policy costs around $1,000 per year. But that’s a small price to pay for the peace of mind of knowing your business and personal assets are protected.

Things to consider when purchasing business umbrella insurance.

Investing in a commercial umbrella insurance policy can be a smart decision to safeguard your assets. However, it’s crucial to consider a few things when shopping for the proper coverage.

What’s the right amount of coverage for a business?

There is no magic number. The amount of coverage depends on the size and nature of your business needs and its potential risks. A good rule of thumb is to purchase enough coverage to protect your assets and future earnings in an unexpected situation.

What are your business’ unique exposures?

Insurance exposures refer to the potential risks a company faces and the financial consequences of these risks. Different industries and types of businesses have their own liability risks and vulnerabilities that require specific levels of liability protection.

The restaurant industry, for example, is fast paced with high foot traffic and slippery surfaces, making it a hotbed for slip-and-fall accidents. A simple spilled drink or a wet floor can lead to severe customer injuries, resulting in costly insurance claims and potential lawsuits.

According to reports, slip-and-fall accidents account for a large portion of insurance claims filed in the restaurant industry. A quick Google search for slip-and-fall accidents will flood your page with lawyers, often encouraging victims to file a lawsuit. And with some cases reaching upwards of a million dollars, it’s critical to have proper coverage for those possible situations.

An insurance broker can help you identify the right type and amount of coverage for your business based on your specific needs. Knowing your risks means you can guard your company against potential financial losses and minimize the impact of unexpected events.

Does my company really need umbrella insurance?

Depending on your industry or profession, you may require or benefit from additional protection to safeguard against potential liability risks and lawsuits.

For example, you will need general liability insurance to work on specific job sites if you’re a contractor. Meanwhile, a hospitality industry establishment with a high net worth may face increased lawsuit risks as guests could suffer bodily injury or property damage. The more coverage you have, the better off you will be in that sticky situation.

Understanding these requirements and risks will help you comply with regulations and avoid unexpected situations. Keep your business and assets safe by staying informed and taking proactive measures.

Can I get umbrella insurance for less?

One way to reduce your liability risk and potentially lower your insurance premiums is to implement a safety program. This is particularly relevant in industries such as construction, where accidents and injuries are common.

You can make your business attractive to underwriters by implementing risk management practices, performing claim reviews, and creating safety programs and loss control measures. Your company may receive more competitive insurance rates if it’s considered low-risk. It’s not a guarantee, but safety protocols are a wise practice for any leader. 

Considering all these factors allows you to make an informed decision when purchasing an umbrella policy and protect your business from unforeseen risks.

Isn’t my general liability insurance enough?

It’s understandable for business owners to assume that their general liability insurance adequately protects them against future problems. But in reality, general liability coverage limits may not always be enough.

Commercial umbrella insurance provides additional protection to safeguard your business assets and reputation. In the event of an unexpected employee lawsuit, accident or damage that exceeds the limits of your general liability policy, umbrella insurance can help cover the excess costs. Without this additional coverage, however, your business may be at risk of financial devastation, severely impacting your operations and future growth. Or worse, causing it to close for good.

Since claim costs can easily surpass general liability insurance limits, investing in commercial umbrella insurance lets you sleep soundly, knowing your company is protected, no matter what happens.Don’t leave your business vulnerable to unforeseen risks. If you’re looking for expert guidance and tailored insurance solutions for your company, contact Crane Agency today.