How Can Umbrella Insurance Help a Small Business?

3. June 2015 07:40


Word has it that only the rich and famous benefit from Umbrella Liability Insurance. While it's true that the upper crust may have more assets to protect, that doesn't mean Umbrella Insurance is a luxury only a few need or can afford.

Here's a little known fact about Umbrella Insurance: for small-business owners, it can be a cost-saving tool. But before we get into that, let's establish what this policy can and can't do for you.

Under My Umbrella (Insurance)

Umbrella Liability Insurance is a unicorn among insurance policies. While it's a standalone policy, its primary function is to supplement underlying coverages (General Liability Insurance, Hired and Non-Owned Auto Liability Insurance, and Employer's Liability Insurance). That means two things:

  1. It offers an extra buffer of financial protection.
  2. You can't just draw on your Umbrella policy outright.

In other words, your underlying policy has to reach its limit before you can apply your Umbrella coverage toward the remaining cost of the claim. For example, say your business is facing an advertising injury lawsuit, a claim your General Liability policy can address. However, between the judgment and legal defense fees, you owe $1.5 million – that's $500k more than your GL policy limit can account for. If you have Umbrella Insurance, it can cover that staggering leftover amount so it doesn't come out of your pocket (or run you out of business).

An Umbrella policy can be a lifesaver when a disaster exceeds your initial planning.

Umbrella Insurance: Enough to Make You Sing in the Rain

Here are some other interesting things to know about Umbrella Insurance:

  • It can save you money. Raising the limits of your individual liability policies means your premiums will likely increase, too. But with an Umbrella policy, you benefit from the added coverage buffer without fussing with individual policy limits. Umbrella Insurance usually costs as little as a few hundred bucks a year (and is available in $1 million increments), so you won't break the bank by investing in this rainy day coverage. (Still concerned about affording insurance? Get an idea about how much our clients typically spend in our 2014 Business Insurance Cost Analysis page.)
  • It can help you meet a contract's insurance requirements. If you're courting wealthy clients or big businesses, they usually want a little assurance that you can essentially put your money where your mouth is. For example, they may require you to carry a certain amount of General Liability Insurance before you can start working for them. You can fill any limit gap between what you have and what they want with an Umbrella Insurance policy. After all, an Umbrella policy demonstrates that you have the financial resources to cover even high-dollar settlements or judgments.
  • It gives you peace of mind. Unexpected things happen all the time. Your employee may be going to meet a client and accidentally slam into a vehicle in front of them. Because it happened during a work errand, your business could be held accountable for the accident. That kind of liability can be enough to ruin a small business, but if you have Umbrella Insurance, you at least have the financial flexibility to handle the ordeal.

Umbrella Insurance is truly a versatile and convenient policy, but even the most useful policies have their limitations. In this case, Umbrella Insurance can't be applied to Errors & Omissions Insurance, Employment Practices Liability Insurance, D&O Insurance, Cyber Liability Insurance, or Commercial Property Insurance. For ideas on how to save money on these policies, talk to an insureon agent.

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