COMMERCIAL UMBRELLA INSURANCE
Business owners can never know exactly how much liability insurance coverage they’re going to need in order to cover unexpected costs and damages. However, there is an extra safety blanket that businesses can purchase to gain an additional level of financial security. This is called commercial umbrella insurance.
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COMMERCIAL UMBRELLA INSURANCE
Commercial umbrella insurance provides businesses with added liability coverage when claims exceed the limits of certain primary insurance policies, such as general liability or commercial auto. Most umbrella policies provide an extra $1 million of coverage. The cost of commercial umbrella insurance varies, but most small businesses get annual coverage for $500 to $1,500.
Business owners can never know exactly how much liability insurance coverage they’re going to need in order to cover unexpected costs and damages. This can be a serious cause of anxiety, especially in this day in age, with the US plaintiffs bar clawing after higher and higher litigation settlements. However, there is an extra safety blanket that businesses can purchase to gain an additional level of financial security. This is called commercial umbrella insurance.
What is a commercial umbrella insurance policy?
This insurance policy provides commercial insureds with an extra layer of liability coverage on top of the specific amount written in a basic policy issued by a primary insurer. Simply put, it protects commercial insureds against ruinous claims that go beyond the liability limits stated in basic general liability, business auto liability, and other commercial liability coverages.
Commercial umbrella insurance really comes in useful if a business finds itself at the center of a liability lawsuit. If a customer gets injured on a business’s premises and sues the business for $2 million, but the company only has $1.5 million in liability coverage, this is when the umbrella policy could essentially make up the $500,000 shortfall.
When does commercial umbrella insurance kick in?
A little bit of extra coverage sounds great, right? But it’s important for policyholders to know that a commercial umbrella policy only covers certain areas – primarily: general liability insurance employer’s liability insurance, workers’ compensation and commercial auto liability. Once purchased, it can only be applied to a claim if an insured has the appropriate underlying policy and if that underlying policy’s limits have been reached.
How much does a commercial umbrella policy cost?
The cost of commercial umbrella insurance policies vary depending on the type of industry, the size of the business, and so on. For many businesses, the cost of commercial umbrella Insurance is still very affordable, especially when you consider the coverage it provides […] purchasing a commercial umbrella policy can be less expensive than raising the limits on your individual underlying policies. If a contract requires you to have higher liability limits, you may end up saving money by going with a commercial umbrella policy.”
Typical Business Umbrella Insurance Cost by Industry
| Business Industry | Annual Premium |
|---|---|
| Janitors and Maids | $1,130 |
| Retail | $1,154 |
| Restaurants | $1,163 |
| Architects and Engineers | $1,284 |
| IT | $1,341 |
| Media Business | $1,381 |
| Accounting Businesses | $1,887 |
| Insurance Agents | $2,016 |
| Contractors & Construction | $2,410 |
| Business Consultants | $2,554 |
How Commercial Umbrella Insurance Works
Commercial umbrella insurance is a policy that increases coverage limits over other policies and is only used if needed. A commercial umbrella policy is only used in insurance claims if the policies under it are no longer able to protect the risk, meaning they have used all the protections they are allowed to and there is still liability exposure.
For example, the commercial umbrella policy may have general liability, commercial auto, and workers’ compensation policies under it. If a company box truck with liability coverage of $250,000 is responsible for a 10-car pile-up on an icy road, the damages could be $800,000. The commercial auto covers the first $250,000 up to its policy limits and then the umbrella kicks in to pay the rest.
Who Commercial Umbrella Insurance Is Right For
Any business with liability exposure can benefit from having a commercial umbrella policy. Small business owners who interact directly with the public on their own commercial property or on a third-party’s property should assess their need for umbrella coverage. Certain business operations increase chances of high claims or lawsuits.
Typical scenarios where commercial umbrella insurance is needed include:
- Commercial property is open to the public: Any business with foot traffic has a significant risk exposure that the standard limits on commercial general liability may not be sufficient to cover. For example, restaurants may have wet floors that patrons slip on.
- Business conducted on clients’ property: Service providers, such as plumbers, handymen, or construction contractors, do most of their work on other people’s property, increasing the risk of third-party bodily injury or significant property damage.
- Employees use their own cars for business: Businesses such as life insurance that require representatives or their employees to use their own cars for work purposes can increase the risk of at-fault accidents.
- Clients require high coverage requirements: Contracted work where clients require higher than existing coverage limits on one or more insurance policies.
The biggest factors that drive the need for commercial umbrella insurance are industry type and exposure to the public. For example, construction contractors work mostly on somebody else’s property and they often use dangerous machinery. These factors increase their risk of third-party liability claims, such as bodily injury or property damage, and their need for umbrella coverage.
What Commercial Umbrella Insurance Covers
Commercial umbrella insurance adds coverage to most existing business insurance policies that have liability components. It adds additional coverage to the liability components of those policies that kick in when the underlying policy meets its coverage limits. Having an umbrella is often the most cost-effective way to get higher liability coverage on multiple policies.
Excess Claims on Commercial General Liability Insurance
A commercial general liability (CGL) policy covers third-party liability for bodily injury, property damage, and personal and advertising injury. General liability claims often happen after slip-and-falls or similar incidents resulting in bodily injury or property damage. Claims can be expensive, creating huge financial exposure to companies. Commercial umbrella insurance adds coverage to these liability limits.
Most third-party risk exposure rises when your customers do business with you on your premises. For example, bodily injury or property damage to your customers can potentially turn into an expensive lawsuit that can take the cost of claims above the standard CGL limit of $1 million. To protect against this risk, umbrella insurance is necessary.
Excess Claims on Workers’ Compensation
Workers’ compensation insurance pays for medical care, rehabilitation services, and lost wages for employees injured while working. In some cases, employee claims can potentially require extended coverage from commercial umbrella insurance. Commercial umbrella insurance extends coverage to assist in covering not just claims exceeding coverage but lawsuit defenses arising from workers’ compensation claims.
Excess Claims on Commercial Auto Insurance
Commercial auto insurance has several components that cover third-party liability from at-fault accidents as well as protecting the vehicle insured. A commercial umbrella policy provides additional protection to the liability portion of the commercial auto policy. A commercial auto policy with $250,000 in liability limits gets the added coverage from the umbrella policy.
Excess Claims on Hired & Non-owned Auto Liability Insurance
Hired and non-owned auto liability insurance covers damage caused by the cars your business uses but doesn’t own. This coverage would include vehicles you lease or rent, as well as for your employees’ cars when they run errands for the business. A commercial umbrella policy would extend the liability coverage limit on this type of insurance if the employee injures someone or damages property in an at-fault accident while working.
What Commercial Umbrella Insurance Does Not Cover
Commercial umbrella insurance won’t cover claims if you don’t have the appropriate underlying policy in place. For example, if you don’t have a commercial general liability (CGL) policy, your umbrella insurance won’t cover CGL claims. Additionally, there are excluded policies that a commercial umbrella policy will not cover.
Commercial umbrella insurance commonly excludes things like:
- Commercial property insurance: Does not apply to property insurance claims including office space, equipment, or inventory.
- Errors and omissions (E&O) and professional liability insurance: Excludes claims for professional mistakes or things that you overlook in the course of doing business, which are covered by E&O insurance.
- Claims already covered by underlying policies: Must meet underlying policy coverage limits before the umbrella coverage starts paying.
- Claims that you don’t have primary coverage for: Excludes claims from liability if no underlying policy exists. If you don’t have a general liability policy and someone falls and sues, your umbrella won’t pay a dime.
- Employee discrimination lawsuits: Does not pay claims and lawsuits arising from unfair and discriminatory employer practices normally insured via an employment practices liability insurance policy.
Review all policies to make sure you have the most important coverage for the risks you are most susceptible to. At the same time, understand exclusions so you can find either specialty insurance or develop employment practices to mitigate those risks.
Commercial Umbrella Insurance Policy Example
As an example, let’s say a customer trips and falls at your place of business and they incur a serious bodily injury that leads to medical costs and an expensive lawsuit. The total claims and settlement charges are $1.2 million. If the limit on your general liability insurance is $1 million, an umbrella policy could cover the extra $200,000. However, if you have no general liability insurance, your umbrella insurance will cover zero claim costs.
Pros & Cons of Business Umbrella Insurance
Purchasing a commercial umbrella policy is completely optional. The factors small business owners should consider when making their decision include what the existing coverage limits are, how many policies exist, and whether or not they are at the same carrier. These factors contribute to the pros and cons commercial umbrella insurance costs.
Pros of Commercial Umbrella Insurance
The pros of commercial umbrella insurance include:
- Costs less than increasing limits on all policies: Reduces the need to increase multiple policy premiums with one, often reasonably priced policy covering all relevant policies.
- May provide discounts on underlying policies: Discounted options are offered by many providers when commercial umbrella insurance is at the same provider.
- Covers gaps in some liability options: May provide liability coverage for vacant property and empty lots where no other coverage is required.
Cons of Commercial Umbrella Insurance
The cons of commercial umbrella insurance include:
- Mandates coverage for underlying policies: Requires minimum liability coverage elections on all underlying policies. General liability may require $500,000 while commercial auto may require $250,000 or more depending on the carrier’s rules.
- Can increase cost of underlying policies: Forces increased costs for underlying policies with low liability coverage options, thus increasing some policy prices to meet umbrella eligibility.
- Cumbersome when policies are at multiple carriers: Underwriting and pricing becomes cumbersome when policies, such as general liability and commercial auto, are held at different carriers, often adding surcharges to the annual premiums of the umbrella policy.
Commercial Umbrella Insurance Frequently Asked Questions (FAQs)
Figuring out how commercial umbrella insurance fits into all your insurance and mitigation strategies can get overwhelming. Below are a few commonly asked questions.
Do I need a commercial umbrella policy?
A commercial umbrella policy is not required for a business for licensing or permits. Even if a client requests higher coverage, a small business owner may choose to increase limits on existing policies. However, if a business has more than one policy with liability coverage, it is smart business to get a commercial umbrella policy.
How much does umbrella insurance cost?
Most small business owners can expect to pay anywhere from $500 to $1,500 annually for umbrella liability insurance. Prices are typical for policies with $1 million of per occurrence limits and vary depending on the industry and claims history of small business owners.
What is the difference between umbrella & excess liability coverage?
The terms excess coverage and umbrella policies are often used interchangeably, but do have a significant distinguishing factor. Excess coverage just increases liability coverage in an underlying policy, while an umbrella policy may broaden coverage. An example is expanding the geographic coverage area by an umbrella policy.
Does umbrella cover property damage?
Umbrella insurance will extend coverage for third-party property damage claims but does not extend coverage for business personal property. For example, if a plumber’s van had its brakes fail, causing it to collide into a million-dollar mansion, the mansion is covered but the van and tools are not.
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