What Is a Commercial Umbrella Policy?
If you carry a parasol with you whenever it’s sunny out, you might call that an umbrella policy. But you’re probably more interested in the insurance term, aren’t you?
In the context of business insurance, a Commercial Umbrella policy is designed to supplement existing insurance policies. This means Commercial Umbrella Insurance kicks in when the cost of a lawsuit exceeds the limits of certain liability insurance policies you already have.
For instance, say your business is faced with a very expensive lawsuit. It’s so expensive, in fact, that the insurance policy you’ve been relying on to cover the claim is all tapped out. Its limit has been reached, in other words. We’ll say that limit is $1 million and the total cost of the lawsuit is about $1.5 million.
How are you going to pay for that extra $500,000?
You could pay out of pocket, but chances are you don’t have a giant vault in your office stacked with millions of dollars in cash. If you have a Commercial Umbrella policy, however, your Commercial Umbrella Insurance may be able to cover the remaining $500k.
Pretty sweet, right? But like any insurance policy, there are some conditions.
Commercial Umbrella Insurance Only Supplements Certain Underlying Policies
To best benefit from having Commercial Umbrella Insurance, it’s good to know when it does and doesn’t help. As a rule, Commercial Umbrella Insurance can only supplement coverage for these policies:
If you reach a limit on any or all of these policies, your Commercial Umbrella Insurance may provide additional funds for a covered claim. So if you’ve reached your General Liability Insurance limit but have another claim, Commercial Umbrella Insurance may be able to help. If an employee injury lawsuit is costing your business way more than the standard Workers’ Comp policy can account for, again, Commercial Umbrella Insurance can help.
Note, however, that Umbrella coverage can’t supplement your Errors & Omissions Insurance or other policies that aren't listed above. If you feel your E&O limits don’t provide enough protection, talk with your insurance agent about your options.
What Does a Commercial Umbrella Policy Cost?
Commercial Umbrella Insurance is useful because it’s usually an inexpensive way to get more coverage. Rather than individually increasing underlying policy limits (which can raise premiums), you can usually buy a Commercial Umbrella policy for a few hundred dollars a year and get $1 million in coverage. Plus, this extra coverage is bit more flexible than just increasing limits because it can be applied to multiple policies.
For much more information on Commercial Umbrella policy costs, see "How Much Does Business Umbrella Insurance Cost?"
Should I Get a Commercial Umbrella Policy?
It depends. Not all businesses may benefit from having Umbrella Insurance. Consider your specific business risks and needs, and talk with your insurance agent about what kind of liabilities you may have.
Generally, you may benefit from Commercial Umbrella Insurance if you’re concerned about the coverage your primary policies provide. Here are some things to think about:
- Is your business open to the public? More visitors mean more chances that someone could be injured on your property, which increases the likelihood of facing expensive General Liability claims.
- Do your employees drive their own cars for work purposes? If they get into a serious accident, your business could be sued for damages and your auto coverage may not be enough to address the claim.
- Are your employees at risk of getting injured on the job? Serious work injuries may trigger lawsuits, and those can easily exhaust your Employer's Liability coverage.
- Do you work with wealthy clients? They may require you to carry higher insurance limits to mitigate potential losses.
If you think your business is vulnerable to these liabilities, you may want to ask your agent about Commercial Umbrella Insurance. It’s better to be on the safe side, after all, than to risk shouldering heavy lawsuit costs on your own.
Feel free to contact us if you have other questions about Commercial Umbrella Insurance. As for your parasol options, well, that's a matter of taste and climate, isn't it?