A good small business insurance policy not only accounts for the unexpected but also gives you some extra cushion in case the liability insurance in your base policy is insufficient. Commercial umbrella insurance gives you that extra cushion.
For instance, your business will need to pay the additional amount if your employee is making deliveries and causes a car crash that results in multiple injuries and the medical expenses exceed your commercial car insurance liability limits. But if you have commercial umbrella insurance, the policy will cover the excess amount.
The best small business insurance policies can be tailored to meet your company’s specific needs and commercial liability insurance is a valuable coverage worth considering.
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What Is Commercial Umbrella Insurance?
Commercial umbrella insurance offers an extra layer of liability protection for your business. Once a claim reaches the liability limit on an underlying insurance policy—such as commercial general liability insurance—a commercial umbrella insurance steps in with additional liability protection.
What Does Commercial Umbrella Insurance Cover?
Commercial umbrella insurance helps to pay liability claims that exceed the limits of an underlying insurance policy, such as a general liability policy or a commercial auto insurance policy.
A commercial umbrella insurance policy covers the costs of legal expenses, medical bills, damage to someone else’s property and court judgments and settlements.
Insurance companies write commercial umbrella policies with aggregate limits ranging from $1 million to $15 million.
What Is Not Covered By Commercial Umbrella Insurance?
Commercial umbrella insurance policy won’t cover all insurance claims. For example, a commercial property insurance policy isn’t a policy that can be included in a commercial umbrella insurance policy.
Let’s say an office fire damages business equipment. You would need to pay for these damages with your commercial property insurance coverage without the assistance of a commercial umbrella insurance policy.
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How Does a Commercial Umbrella Insurance Policy Work?
Let’s say your company is sued for $2 million but only has $1.5 million in business liability coverage. Your liability insurance would only cover your legal defense costs, settlements and judgment up to the policy limit, meaning you would be on the hook for the $500,000 shortfall.
Without a commercial umbrella policy, you would need to pay the $500,000 out of your business funds, potentially putting your business at risk. Another option is using your personal funds and risking your personal financial stability.
A commercial umbrella policy can pay for liability costs above the primary liability policy’s limit. In this scenario, your commercial umbrella policy would cover the $500,000 shortfall.
Who Needs Commercial Umbrella Insurance?
In general, the more your business interacts with clients and customers in person, the greater your company’s liability risk. And risks are even greater if your employees use heavy or dangerous equipment on their jobs. Both of these types of businesses would do well to extend their liability limits with commercial umbrella insurance.
Other scenarios include a business where you work on someone else’s property or one that allows the public to visit during working hours. If people can visit your business during the day, it increases the risk of bodily injury claims. Working offsite on someone else’s property risks property damage incidents. These are both good reasons to get some extra liability protection with a commercial umbrella insurance policy.
How Much Commercial Umbrella Insurance Do I Need?
The amount of commercial umbrella coverage you need depends on the types of risks that are common in your industry. Insurers write commercial umbrella insurance policies with aggregate limits ranging from $1 million to $15 million and are typically sold in increments of $1 million.
For example, a retail store (such as a high-end jewelry store) may have different needs compared to a business that deploys a fleet of delivery trucks or a business that has a team of construction workers. It’s a good idea to speak with your insurance agent to determine the appropriate amount of coverage for your business.
How Much Does Commercial Umbrella Insurance Cost?
Commercial umbrella insurance costs about $40 per month for each $1 million of additional insurance coverage, according to Insureon.
The coverage amount you choose and the level of risk of the business determines your cost of a commercial umbrella policy.
Some small businesses (29%) pay less than $50 a month for commercial umbrella insurance, and 32% pay between $50 and $100 a month, according to Insureon.
Paying your entire premium upfront is one way to save money on a commercial umbrella policy. Making monthly payments may be handy, but you’ll pay a higher price overall each year. If you have the cash, you may wish to pay your commercial umbrella policy in its entirety.
When Can You Add Commercial Umbrella Insurance?
Wondering what kinds of liability insurance can benefit from the additional layer of commercial umbrella insurance? General liability insurance, commercial auto insurance, hired and non-owned auto insurance and employer’s liability insurance are good candidates.
General liability insurance
General liability insurance protects your business from a range of claims, including claims of bodily injury and property damage from clients and customers. Other claims include copyright infringement, reputational harm and advertising injury.
Commercial auto insurance
Commercial auto insurance offers insurance protection for the cars, trucks and vans that you use for your business. A personal auto insurance policy typically doesn’t include the business use of vehicles for business. That is why it is so important to get liability coverage from a commercial auto insurance policy.
Hired and non-owned auto liability insurance
Hired and non-owned auto liability insurance provide auto liability coverage should employees rent or use their own cars for business purposes. Because a personal insurance policy won’t cover any business-related driving, buying a hired non-owned auto liability insurance is essential if you are renting a car for work or driving your own car for work purposes.
Employment practices liability insurance
Employment practices liability insurance offers protection against lawsuits filed by your employees against your company.
What’s the Difference Between Commercial Umbrella Insurance and Excess Liability Insurance?
Excess liability insurance can provide additional liability coverage for one of your underlying liability insurance policies. As with commercial umbrella insurance, an excess liability insurance policy kicks in when an underlying insurance policy has reached its liability limits and offers additional liability coverage.
An excess liability insurance policy only provides additional liability coverage to a single underlying policy, such as a general liability insurance policy.
A commercial umbrella insurance policy can provide additional coverage to several liability insurance policies.
Choosing Liability Policies for a Small Business
General liability insurance and commercial auto insurance are popular choices for small businesses. And you may want to consider these additional liability insurance options:
Directors and officers liability insurance
Directors and officers liability insurance covers defense costs and damages for claims made against an officer or director in the company.
Fire legal liability insurance
Fire legal liability insurance offers coverage in the event you are found liable for a fire in a space where you rent or lease.
Liquor liability insurance
Liquor liability insurance protects a business against injury claims when alcohol is supplied during the course of business operations. This is a good insurance option for a restaurant or a bar.
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