Commercial Umbrella Insurance Guide

What Is Umbrella Liability Insurance?

Commercial Umbrella insurance — also known as Umbrella Liability insurance — is a type of coverage that exists over and above other insurance policies your business holds. In simple terms, it’s a form of excess liability insurance that’s meant to kick in when coverage from other policies runs out. The main differences between Umbrella and Excess policies is that Umbrella coverage provides additional limits over the underlying liability, and it usually provides broader coverage than Excess Liability.

An Umbrella policy is designed to protect your business against sizable claims or lawsuits that might exhaust your standard Commercial General Liability (CGL) policy, Commercial Auto coverage, and Employer's Liability. With excess liability coverage, Umbrella insurance helps safeguard your company’s assets in the event of a lawsuit that might otherwise be devastating.

Do I Need Umbrella Insurance?

Virtually any business can benefit from holding the excess liability coverage that an umbrella policy provides. Accidents happen, and there’s always a chance of encountering a lawsuit that exceeds policy limits for your existing liability coverage.

With that said, you need to evaluate your budget (and other factors) to determine whether Commercial Umbrella insurance is a worthwhile investment for you. In essence, this type of coverage is a form of risk management, so you need to assess your level of liability risk.

For example, a business employing a fleet of delivery drivers has higher liability risk than a company whose employees all work in an office. Having drivers on the road increases your company’s risk of being held liable for accidents — risks which added liability insurance could help cover.

Also, there may be certain contractual situations that require your business to hold Commercial Umbrella insurance. If your business has a government contract, for instance, the contract will likely mandate that you carry this type of coverage.

What Does Umbrella Insurance Cover?

The point of a Commercial Umbrella policy is to provide coverage when your claims exceed policy limits for your business’s General Liability coverage. A Commercial Umbrella policy increases your liability coverage to provide extra payouts that help you cover substantial claims.

This type of insurance can feasibly protect your company from any liability claim, including libel, reputational damage, vehicular accidents, product liability, or customer injury. If a cell phone company manufactures faulty phones that end up overheating and exploding, a commercial umbrella policy might help cover the injury and property damage claims related to that product. Also, if a customer slips and falls while shopping at a grocery store, the store’s Umbrella policy might come into play to protect the store in the case of a lawsuit.

How Does Commercial Umbrella Insurance Work?

To understand how Commercial Umbrella insurance works, consider the earlier delivery driver scenario. Say you have a fleet of delivery drivers on the road and one of them makes a mistake on the road that causes a multi-vehicle accident. Your driver is found to be at-fault for the accident. Multiple other drivers and their passengers were injured because of the collision, and file claims on your Commercial Auto policy. Your policy has a maximum bodily injury limit of $250,000, but your claims total $350,000.

With only your Commercial Auto policy in place, the claims exceed policy limits by $100,000 — potentially leaving your business liable to cover those expenditures. With the additional liability coverage of an Umbrella policy, though, you have a safety net in place. Your Commercial Auto insurance policy still covers the first $250,000 in claims, but your Umbrella policy covers the remaining $100,000.

Umbrella coverage saves your business from a significant in-house expense, protecting your assets and perhaps even rescuing you from a bankruptcy situation.

Umbrella insurance examples

How Much Does Umbrella Insurance Cost?

As with any other type of insurance policy, Umbrella insurance fluctuates in cost depending on the specifics of your policy. In particular, how much excess liability you decide to buy will be a major determining factor in how much you can expect to spend. 

Price fluctuations are a factors when considering the best Umbrella policy for your business. Since Umbrella insurance is a type of risk management coverage, you need to assess your risk along with the size of your company, how many employees you have, net worth, and more. In most cases, Umbrella policy limits start at $1 million and go up from there. If you need $4 million in excess liability coverage, you’re obviously going to pay considerably more than you would for the minimum $1 million of coverage.

The amount of coverage you get is the primary factor in determining the cost of your policy, but also note that your industry may play a role. Insurance companies charge more for extra liability insurance in industries they deem to be high-risk, such as healthcare. Demand for coverage in these industries also tends to be higher than in lower-risk sectors, which can also help explain the higher coverage rates.

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P.S. Check out our blog or our Insurance Guide Section to learn even more.