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If you run a business that is at risk of lawsuits from employees, customers, or third parties, you may want to think ahead to ensure that one costly lawsuit doesn’t destroy your business. Increasingly popular, commercial umbrella insurance allows you to more affordably add coverage to your existing policies. Umbrella insurance can not only increase your limit, but also expand the scope of claims and liabilities that can be covered by your basic policy. In the sections below, we’ll review what commercial umbrella insurance is, how it works, and what it does and doesn’t cover. We then outline expected premiums and how to compare policies, followed by reviews of the best commercial umbrella insurance companies, including the three listed below.
Umbrella Insurance Policy Benefits
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Common Myths About Umbrella Insurance
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Most businesses take out a range of insurance policies aimed at protecting their reputation and income in the event that legal action is taken against them. Each policy purchased has its own per-occurrence limits and aggregate limits that an expensive lawsuit can exhaust. Commercial umbrella insurance provides an additional layer of protection in the event that a business exceeds the limits of one or more of its basic liability policies.
Commercial umbrella insurance is purchased when anticipated legal costs or contract terms may exceed the limits of your existing policy. It is used to supplement general liability, employer’s liability, commercial auto insurance or leased and non-owned auto insurance, benefiting both large and small businesses.
Commercial umbrella insurance should not be confused with personal umbrella insurance, which can only be applied to personal plans such as auto, boat, or homeowner’s insurance. Commercial umbrella policies are intended for business owners and can cover claims related to property damage, workplace injury and/or advertising injury. Simply put, commercial umbrella insurance provides additional coverage when the limit of your existing general liability, employer’s liability or commercial auto insurance policy is exceeded.
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As a reminder, general liability insurance covers third-party claims related to bodily injury or property damage that occurs at your business or as a result of your business’s actions. Commercial umbrella insurance differs from general liability insurance in that it is intended to supplement general liability coverage (as well as other coverages), not replace it.
Commercial umbrella insurance is often confused with excess liability insurance, and it’s important to be aware of the differences between the two types of coverage. Excess liability insurance provides additional coverage that exceeds the initial policy limits, but is intended to increase the limit of a basic policy. For example, if your general liability policy is limited to $1 million per occurrence, taking out an additional $1 million in excess liability coverage can cover a lawsuit totaling $2 million in costs. In this scenario, the terms and conditions of your basic policy cannot be changed by adding excess liability insurance. Excess coverage will adhere to all terms of the original policy. If the initial policy does not include claims in foreign countries, for example, the excess policy will not include them either.
Commercial umbrella insurance, on the other hand, has the power to extend the terms and conditions of your underlying policies while increasing the coverage limits that apply to them. An umbrella insurance policy can extend coverage to cover claims or circumstances that the basic policy does not cover. It can, for example, extend the terms of your policy to cover claims in foreign countries. Umbrella policies operate under their own set of terms and conditions, often offering more coverage than the underlying policies. However, if you plan to use commercial umbrella cover to deal with claims not covered by your primary policy, expect to pay an initial SIR or self-insurance fee.
The main differences between commercial umbrella and excess liability insurance are the amount of underlying policies each can apply to and the conditions each adheres to. Excess liability insurance applies to one policy (ordinary general or professional liability), while umbrella insurance can apply to multiple policies such as general liability, employer’s liability and auto insurance. Excess liability adheres to the terms and limits of the basic policy, while umbrella insurance has the power to extend the terms and cover additional claims not included in the original policy. One of the benefits of some umbrella insurance plans is that they can be used to extend the limits of basic policies purchased from another company.
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Note that some insurers may use the terms “umbrella insurance” and “excess liability” interchangeably. Considering the small but very significant differences between these two types of policies, it is especially important to read the fine print and fully familiarize yourself with both options before deciding on one.
Commercial umbrella insurance comes into play when you need to expand the limit of your existing general liability, commercial auto or employer’s liability policy.
Consider this scenario: One of your employees loses control of a company vehicle in another company’s parking lot, damages the front entrance, injures himself, and injures a person standing near the front entrance. Lawsuits that arise against your business may include property damage, personal injury, and a workers’ compensation claim against your employee. The cost of two medical bills and property repairs can greatly exceed your existing policy limits. Commercial umbrella insurance can cover additional costs within the policy.
Here’s another scenario: Let’s say your new contract with your biggest client requires you to have at least $3 million in liability coverage to make the deal final. If your existing limit is only $1 million, you will need umbrella insurance to cover the remaining $2 million. This is common when working with large companies in high-risk industries such as construction. Topping up your cover with umbrella insurance is often cheaper than increasing the basic policy limits. Umbrella insurance can also cover losses and claims that your basic policy doesn’t address, making it a more effective choice to protect your business.
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As with other forms of insurance, your premium or monthly cost of insurance will depend on how many umbrellas you buy, your location and risk factors. Instead of paying a deductible before your coverage begins, umbrella insurance plans require you to pay a self-insured retention (SIR). This fee only applies when a new umbrella policy is required to cover claims excluded by your underlying policies, and must be paid before your insurance provider will start paying.
Umbrella insurance covers three main elements of insuring your business. What makes umbrella policies versatile is their ability to cover multiple policies at once.
General liability insurance covers claims related to property damage and bodily, personal or commercial injury suffered by a third party in your business or as a result of your business practices. Bodily injuries can include anything from slip and fall scenarios to injuries resulting from a defective product. Physical injury claims can include expenses such as medical bills, physical therapy, nursing services, compensation for pain and suffering, or loss of income.
A general liability policy also covers personal injury claims, which include damage to reputation caused by defamation. If your business practices adversely affect the reputation of an outside professional, you may find yourself on the receiving end of a defamation lawsuit. Other types of personal injury charges include defamation, invasion of privacy, and false arrest. Costs can include loss of income as a result of a personal injury. The tort of advertising is similar, but focuses specifically on defamation through advertising. If claims made in one of your business’s advertisements damage the outside professional’s reputation, you may be liable for their loss of revenue.
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Property damage is another aspect of general liability coverage. This includes damage to and destruction of third party property based on your business or as a result of your business practices. If one of your employees comes to a home to repair the roof, but accidentally damages the homeowner’s fence, your business will have to cover the associated repair costs.
Commercial auto insurance used by companies with any number of company vehicles up to a fleet usually covers damage to the vehicles, property damage caused by the vehicles and injuries sustained in accidents. Physical damage to the vehicle includes collision and comprehensive damage; the latter covers circumstances other than collisions, such as storms. Many plans also provide uninsured motorist coverage (covering damage to your car caused by an uninsured motorist), the cost of damaged cargo for the customer being transported, and damage to the car sustained during towing.
Auto insurance covered under an umbrella policy also includes leased and non-owned auto insurance (HNOA). This means using a vehicle that your company does not own for business activities. Leased and non-owned vehicles include cars or trucks that your business leases, as well as your and
