How Much Does Commercial Umbrella Insurance Cost?Insurance Explained
Commercial umbrella insurance, often referred to as excess liability coverage, provides your business with an added layer of protection by covering costs that exceed the limits of other liability policies.
It can be purchased to extend the limits of commercial general liability, commercial auto insurance, workers compensation, and employee benefits liability policies. Umbrella insurance will serve as a natural extension of these policies and cover all the expenses that the original coverage would, such as legal costs, medical bills, damage to third parties, and even legal judgments and settlements.
Most businesses should consider an umbrella policy; especially small businesses, who could potentially be crippled by a serious claim that exceeds the limits of their already-purchased insurance coverage.
Being left without sufficient coverage when a significant liability claim hits can devastate your business financially.
Does Your Business Need Commercial Umbrella Insurance?
If your business is at risk of exceeding the limits of your existing liability policies, you should definitely consider extending them with commercial umbrella insurance.
But how can you know whether the coverage you have purchased is sufficient? The truth is that you can’t.
While there are certainly low-risk businesses and industries that most likely won’t ever have to use their commercial umbrella coverage, it’s better to have it and not need it than need it and not have it.
Even if your business isn’t considered high-risk, you should buy the coverage for two main reasons. Firstly, the coverage won’t be very expensive because of your risk profile. Secondly, the peace of mind umbrella coverage can buy you is almost priceless.
Unexpected accidents and incidents that lead to massive losses or extremely costly claims are, unfortunately, always a possibility. Knowing that your business is protected from such worst-case scenarios helps you focus on what you can control without worrying about the things you can’t.
Obviously, companies that operate in industries that are considered high-risk, such as construction, healthcare, or law, should protect themselves from expensive lawsuits bottoming out their liability limits.
If you conduct business on rented property, your commercial general liability policy may be insufficient because the chances of property damage to a third party are greater. Costs for repairing and restoring business property that you don’t own are usually significantly greater.
A general rule of thumb is that the greater the risk of third-party liability lawsuits are, the greater the need for umbrella coverage becomes.
Additionally, if you have a commercial car fleet and you and your team cover many miles annually, you should consider this type of insurance because auto-related claims and injuries can get expensive very quickly.
How Much Will Commercial Umbrella Insurance Cost?
How much will your business have to pay to ensure that it’s covered for the most expensive liability claims? The answer is that it will vary depending on the circumstances and characteristics of your business.
Most small business owners can expect to pay anywhere from $500 to $1,500 annually for umbrella liability insurance. Commercial umbrella insurance cost will fluctuate more for larger companies since risk profiles tend to become more and more unique from an underwriting perspective as a company grows and expands.
Let’s break down some of the key factors that will influence your umbrella coverage premium to give you a better idea of what you can expect to pay:
The primary function of umbrella insurance is to extend your coverage limits. One of the key factors for determining the adequacy of the policy’s protection is the policy limit. In most cases, umbrella policy limits will start at a $1 million per occurrence limit and a $2 million aggregate limit.
This means that the basic policy will pay $1 million for any single claim and double that during the policy’s lifetime. Naturally, you can expand these limits, but you will have to pay a higher premium to do so.
Excess liability policies will also often have sub-limits. For example, a general liability policy will typically include a sub-limit for damage to rented properties. This is a way for insurers to offer broader coverage while excluding risks that they would rather not cover.
These intricacies related to umbrella limits make working with an experienced insurance broker or agent incredibly important when carefully considering the terms of the umbrella policy to understand what’s covered and what’s not and avoid being left without coverage.
Even though the amount of coverage you’ll get is the primary factor in determining the cost of your policy, your industry will also play a significant role.
Insurers view specific industries as riskier than others and will charge higher premiums. Demand for umbrella coverage in high-risk industries is also typically higher since these businesses recognize the liability risks associated with their professions. Keep in mind that insurers won’t simply look at the industry’s entire risk profile but rather focus on liability exposures. This means that companies that perform professional services or can cause harm to third parties will be singled out as riskier.
While not as important as your industry’s risk profile, size will have a considerable impact on your premiums. The size of your company is important because the more employees you have, the more your risk of liability claims or injuries increases.
The way revenue affects premiums is fairly simple. The more money a business makes, the more it will have to pay for liability insurance. Companies with high revenue attract more lawsuits led by better legal teams. Additionally, if they end up losing the lawsuit or have to settle out of court, they’ll have to pay a lot more than smaller businesses.
Insurers will look at your claims history as a good indicator of your potential for future claims. If your company has an extensive history of expensive lawsuits, you’ll need to pay considerably more for insurance.
Businesses that have experienced claims very regularly may not even be able to secure excess liability coverage from admitted insurance carriers. Keep in mind that insurance companies will ask you to disclose past claims and lawsuits when quoting you. If they discover that you’ve not been truthful during the process, and you’ve omitted or obfuscated this information, they most likely won’t be required to make any payouts on future claims.
Insurance rates vary considerably by state. Businesses operating in high-population, metropolitan areas will usually have higher premiums than those in less urban areas. If your company has property in a high-risk area or a particular area that is known for natural disasters or crime, your premium will also be higher.
Auto Insurance Policy
If you or your employees use vehicles for business and get into an accident on the road, your auto limits can quickly be reached, since vehicle damage and medical costs can quickly add up.
If you extend your auto coverage with umbrella coverage, the factors influencing your umbrella coverage premium will correlate to those affecting the original policy cost. Vehicle value, the size of your fleet, and the mileage your company covers are all factors that can all influence the likelihood of an extended liability claim.
The Potential Cost of Not Having Umbrella Insurance
Ultimately, umbrella insurance is designed to be an affordable way to protect your assets. It’s also a very popular option because buying a commercial umbrella insurance policy will typically cost much less than what it would cost to increase the liability limits on your underlying policies.
Without commercial umbrella coverage, your business will be forced to pay the difference between your underlying coverage limits and an expensive claim out of pocket.
Typically, umbrella coverage responds to worst-case liability claims, such as bad car accidents, serious injury to third parties, gross negligence, or catastrophic damage to expensive property.
And while you (hopefully) won’t be invoking the policy often, the difference between having umbrella coverage and not it when you need it could literally mean the difference between the success and failure of your business.
To get a better understanding of how much umbrella coverage your business should acquire, what coverage limits you need, and how much it will cost you, you can reach out to one of our expert brokers at any time to secure the right coverage at the best price.
Our calculator uses business insurance costs for similar startups to help you get a better understanding of what type of insurance your startup will need and what it might cost.