Numerous companies obtain liability insurance to safeguard against lawsuits, which includes general liability, workers’ compensation, and commercial auto insurance. However, no matter how comprehensive these policies are, they may expose businesses to substantial risks. That’s where commercial umbrella insurance comes in. But what types of businesses need commercial umbrella insurance? Let’s explore who benefits the most from this valuable protection.
What is Commercial Umbrella Insurance?
Commercial umbrella insurance is a kind of policy designed to increase the coverage limits of your existing business insurance policies. These policies are typically built on top of other underlying coverage, such as general Liability or workers’ compensation, and help protect a business from catastrophic financial losses.
The importance of commercial umbrella insurance has grown with increasing litigation and more prominent jury awards. This type of insurance helps protect against large-scale claims, providing additional liability protection when your standard policies reach their limits.
How Does Commercial Umbrella Insurance Work?
The way commercial umbrella insurance works is simple: it steps in when your existing insurance policies reach their coverage limits. For example, suppose your general liability policy covers up to $1 million per incident, and your umbrella policy has a $5 million limit. In that case, your business is covered for up to $6 million.
Umbrella policies can cover several underlying liability policies, including:
- General liability insurance
- Commercial auto insurance
- Workers’ compensation insurance
- Employment practices liability insurance
This added coverage ensures that your business is protected from potentially devastating financial claims that could exceed the limits of these individual policies.
What Does Commercial Umbrella Insurance Cover (and Not Cover)?
Commercial umbrella insurance helps extend coverage beyond the limits of your existing policies. It covers more than just the claims settlement; it also pays for the legal defense and investigation costs, which can be a significant portion of any lawsuit. However, there are some limitations to what it covers.
Commercial umbrella insurance will not cover your professional liability policy, such as malpractice or errors and omissions insurance. You must get a separate professional liability policy if your business requires such coverage.
Example of Commercial Umbrella Insurance in Action
Let’s look at an example of how a commercial umbrella insurance policy can help in real-world situations. Suppose your business has the following policies:
- General Liability: $500,000 per occurrence, $1 million aggregate
- Commercial Auto Insurance: $250,000 per person, $500,000 per accident
- Umbrella Insurance: $10 million limit
Now, consider the following scenarios:
- Slip-and-fall Accident: A patron falls on a slick floor and suffers significant injuries, resulting in a $5 million lawsuit. Your general liability policy covers $500,000. The umbrella policy pays the remaining $4.5 million.
- Car Accident: Your business vehicle is involved in an accident, leading to a $300,000 claim. The commercial auto policy pays $250,000, and the umbrella covers the remaining $50,000.
In both cases, the umbrella policy offers extra protection to safeguard your business from potential financial disaster.
Who Needs Commercial Umbrella Insurance?
Now that you know what commercial umbrella insurance covers and how it works, who needs it the most? The businesses that benefit most from this type of insurance are those with significant liability risks. These businesses typically have multiple insurance policies and want extra protection from potentially high legal costs.
Here are some businesses that should consider purchasing a commercial umbrella policy:
Businesses with Significant Public Exposure
Retail stores, restaurants, and event venues often face higher customer injuries or accident risks. These businesses regularly deal with the public, making them more vulnerable to lawsuits and costly claims. Commercial umbrella insurance helps ensure they have sufficient coverage beyond the limits of their general liability policies.
Businesses with Commercial Vehicle Fleets
Businesses that manage fleets of commercial vehicles, like delivery trucks, face an increased risk of accidents that might lead to substantial financial claims. Commercial umbrella insurance can broaden the coverage of auto policies and provide protection against major accidents.
Contractors
Construction and contracting businesses, especially those working with government agencies or high-liability projects, often need to prove high levels of coverage. A commercial umbrella insurance policy can boost its coverage limits, helping it meet contractual obligations without modifying each underlying policy.
Businesses in High-Risk Industries
Manufacturing, construction, and hazardous materials businesses face inherent risks and are more likely to experience large-scale claims. Umbrella insurance provides an additional level of security to help these businesses endure substantial financial setbacks.
How Much Does Commercial Umbrella Insurance Cost?
Commercial umbrella insurance costs depend on various factors, such as the amount of coverage you need, your business’s risk profile, and claims history. On average, businesses expect to pay around $30 monthly for $1 million in umbrella coverage. Generally, umbrella policies are more cost effective than raising the limits of your underlying policies, as they provide broad coverage at a lower premium.
Shopping for Commercial Umbrella Insurance
When you’re ready to purchase a commercial umbrella insurance policy, there are a few steps you should follow:
Assess Your Coverage Needs
Evaluate your business’s risk profile and financial exposure. Determine the level of coverage you need based on the size of your company, industry, and risk factors.
Get Quotes from Multiple Insurers
Shop and obtain quotes from several insurance providers to compare coverage options and prices.
Bundle Policies for Discounts
Consider bundling your umbrella policy with other types of business insurance, such as general liability or workers’ compensation, for potential discounts.
Work with an Independent Broker
A self-sufficient insurance broker can assist you in managing the process, evaluate offers from various providers, and guarantee you obtain the most favorable coverage deal.
Final Thoughts
In conclusion, what types of businesses need commercial umbrella insurance? Any business facing significant liability risks with multiple insurance policies or working in high-exposure industries can benefit from umbrella coverage. Whether you’re a restaurant owner, contractor, or business with a vehicle fleet, commercial umbrella insurance can provide the extra protection you need to safeguard your business from catastrophic claims.
If you’re unsure whether your business needs an umbrella policy or how much coverage you should get, consult with an experienced insurance agent. They can help you choose the right coverage for your business needs.
