Is a Commercial Umbrella Insurance Policy Worth It?
When a business is looking into an optional insurance policy, the question that almost always comes up is, “Is it worth it?” And that’s a good question to ask for just about everything you purchase as a business owner (although some expenses – like buying donuts for the office – don’t have a clear monetary payoff so much as they’re good at making everyone happy).
When considering Commercial Umbrella Insurance, the cost-benefit analysis depends on your business's unique characteristics, such as…
- Your industry.
- The size of your business.
- Whether your business is open to the public.
- The projects you do.
Your insurance agent can help point out which risk exposures may warrant the extra coverage, but let's look at some considerations so you can decide whether Commercial Umbrella Insurance is worth exploring.
The Cost of Commercial Umbrella Insurance
Unsurprisingly, the cost of a Commercial Umbrella policy varies significantly by industry. Industries with higher General Liability Insurance exposures (e.g., third-party property damage and bodily injuries) tend to experience higher Commercial Umbrella costs. Remember, this coverage can be applied to General Liability policies, so it makes sense that the policies are linked this way.
For many businesses, the cost of Commercial Umbrella Insurance is still very affordable, especially when you consider the coverage it provides. Restaurants and bars, for instance, pay an average of about $440 per year for an additional $1 million in Umbrella coverage. That’s less than the cost of a year’s worth of napkins in many places!
To find out what businesses in your industry typically pay for their coverage, check out our cost analysis guide "How Much Does Business Umbrella Insurance Cost?"
Keep in mind, too, that purchasing a Commercial Umbrella policy can be less expensive than raising the limits on your individual underlying policies. If a contract requires you to have higher liability limits, you may end up saving money by going with a Commercial Umbrella policy.
The Benefits of Commercial Umbrella Insurance
Say you have a Commercial Umbrella Insurance policy that offers $1 million in coverage. How does that benefit you?
As an example, let’s say you own a retail business that operates out of a brick-and-mortar store. You have a General Liability policy in place with a per-occurrence limit of $1 million. One day, a group of visitors is injured when a large shelving unit tips over and falls on them. Many of them are seriously injured, and they all decide to sue you for damages (e.g., medical bills and lost wages).
Your General Liability policy deals with the bulk of these claims, but it quickly reaches its $1 million limit. However, you’re still liable for another $100,000. Instead of paying out of pocket (which might result in your bankruptcy), you apply your Commercial Umbrella Insurance to the remaining cost.
That’s the benefit of this policy. It’s there when an especially expensive claim affects your business, but it can also be useful if multiple claims exhaust your underlying policies’ limits. It’s basically a last line of defense for your personal or business assets when a liability claim strikes. (Related reading: "How Does Umbrella Insurance Work?")
Still not sure about this policy? Talk with your agent before you decide. Or if you'd rather keep reading, check out "How Is Your Business Like a Pina Colada? They’re Both Better with a Small Umbrella!"