Umbrella Insurance: A Policy for When It's Raining Lawsuits
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Lawsuit Protection from Commercial Umbrella Insurance

It's difficult to perfectly forecast the weather, and no one likes getting caught in a thunderstorm unprepared. It's even more difficult trying to predict how many lawsuits will threaten your small business throughout its future. But just as carrying an umbrella is a good idea on a cloudy day, so is having an Umbrella Insurance policy for circumstances when your primary insurance policies might not offer enough protection.

What Is an Umbrella Insurance Policy?

A commercial Umbrella Insurance policy is designed to supplement existing liability insurance policies. It serves three purposes:

  1. Providing additional coverage when the cost of a claim exceeds the per-occurrence limit of one of your primary liability policies.
  2. Providing additional coverage when a claim or claims exceed the aggregate limit of an underlying policy.
  3. Offering broader coverage, providing protection against some claims not covered by the underlying policies.

In other words, it helps pay for covered claims when your previously acquired liability insurance policies are stretched to their limits so you don't have to pay the excess out of pocket. These liability policies can include Commercial General Liability, Hired and Non-Owned Auto Liability, and Employer's Liability Insurance. More on that in "What Does Commercial Umbrella Insurance Cover?"

Say, for example, that your business has a General Liability Insurance policy with a limit of $1 million and a Hired and Non-Owned Auto Liability Policy with a limit of $300,000. You also have an Umbrella Insurance Policy over both underlying policies with a limit of $1 million. If you're faced with a covered claim that results in a legal settlement of $1.5 million, your General Liability Policy will pay for the first $1 million, and your Umbrella Policy will pay for the remaining $500,000.

Then say one of your employees gets into an accident while driving on behalf of the company and the resulting claim is $700,000 for medical expenses and repairs. Your HNOA Policy will pay the first $300,000 and the Umbrella Policy will pick up the last $400,000. You still have $100,000 left on your Umbrella Policy limit to cover any remaining liability lawsuits now that both of your primary liability policies are exhausted.

So in some cases, even if a claim isn't covered by your General Liability or Auto Liability policies, your Umbrella Policy may be able to cover the claim.

That's a lot of information to take in. Right now you might envy the weatherman for having the seemingly simpler job of predicting the future. But it's okay. If you have questions, we're here to help. Feel free to contact an agent and discuss your options.

The most important things to remember about Umbrella Insurance:

  • It can help protect your assets when your business is faced with multiple lawsuits that exhaust a policy's limits.
  • It can help protect your assets when one massive lawsuit causes you to reach your policy's limit.

For more information, check out "How Does Commercial Umbrella Insurance Work?"

One more important feature: Umbrella Insurance doesn't offer additional protection to Errors and Omissions or Professional Liability Insurance policies. If you need higher limits on those policies, talk to your agent.

Who Needs Umbrella Insurance?

Not every business needs Umbrella Insurance. But if your business is especially susceptible to numerous lawsuits, or lawsuits with particularly costly claims (e.g., if you work with big companies or clients with a high net worth), you may want to purchase an Umbrella Policy. More on that in "Do I Need a Commercial Umbrella Insurance Policy?"

An Umbrella Liability Insurance policy is a cost-effective way of extending the limits of your primary liability policies, as it's often cheaper to purchase an Umbrella Policy than individually extending the limits on each underlying policy. This means this coverage affordable to many small businesses – often, $1 million in Umbrella coverage costs only a few hundred dollars per year.

Fill out an online insurance application with insureon to receive multiple free quotes on Umbrella Insurance Policies or contact an agent to discuss your insurance needs. Don't get caught in the storm unprepared. When it rains, it pours.

Umbrella Liability Insurance: Further Reading