Commercial Umbrella Insurance: Everything You Need to Know
Commercial umbrella insurance offers an extra shield of liability insurance protection by compensating costs that advance ahead of your other liability coverage limits.
In short, commercial umbrella insurance complements your other liability insurance protections by taking over the rest of the damage that is beyond what your general liability coverage limits have reached.
What Does a Commercial Umbrella Policy Cover?
Any small business that has the potential to exceed the limits of their existing general liability insurance policies should consider getting commercial umbrella insurance.
Businesses with a commercial property that provide products or services to the public should consider this type of insurance since they work directly with people — which exposes them to an increased amount of risk.
As business owners, if your company is doing business on other people’s property, you are one of the businesses that need more coverage than the general liability policy provides since the third-person injury has a higher chance to occur.
Basically, the two main factors that push the demand for commercial umbrella insurance are your industry type and your business level’s exposure to risks. The greater risk there is for third-party liability claims, the greater your need for umbrella coverage.
Umbrella business insurance policy can protect your business against a liability claim, which includes:
- Vehicular Accidents
- Customer Injury
- Product Liability
- Reputational Damage
Do I Need a Commercial Umbrella Policy?
No matter how you follow the safety and prevention guidelines or put precautions at your company, accidents could always happen. You can’t completely cover yourself and avoid risk with prevention alone. Accidents and incidents are out of your control.
The least you could do is ensure that you are protected when accidents happen. Being unprepared for coverage, you may have to spend out of your pocket for expenses like medical and legal fees that can be catastrophic. Most of the growing businesses may not have the capital to recover from lawsuits without being covered.
Having commercial umbrella insurance is the best risk management strategy any small business could have to stay afloat. Hence, it is all about being ready by getting enough protection in the form of insurance coverage.
Typically, the more your small business interacts with customers physically, the higher your liability risk. If your employees use heavy machinery or dangerous equipment, expect that your risk will be greater.
If you anticipate that the amount of a claim will surpass your liability insurance limits, purchasing commercial umbrella insurance is the best idea. It can help your business when:
- Your business often interacts with customers
- Your business operates on other people’s property
- Available to the public during open hours
Who Needs Commercial Umbrella Insurance?
Generally, all businesses can benefit from having business umbrella insurance, but most businesses that buy this policy:
- Have insurance already but need to close the gap on requirements above $2 million
- Have high liability risks
- Need more liability protection
What Does Commercial Umbrella Insurance Cost?
There is a significant difference between the low and high end of umbrella insurance. Because no two businesses are the same, they also face different risks that each company is exposed to.
The amount of insurance you get is also a factor. Some businesses may only need $1 million worth of umbrella coverage, while others may need as much as $100 million or more. Even if both businesses are similar, the costs vary depending on different factors.
Looking into the overall costs, remember that there is no way to determine where you belong on this scale without getting a quote from your insurance company.
For a limit of $1 million coverage, here are some guidelines:
- High End: The high end of umbrella business insurance costs $2,500 per year or more. Those who fall into this category have a vast professional liability risk, such as doctors, lawyers, and the construction industry.
- Low End: The low end of commercial umbrella insurance can cost as little as $200 to $400 per year. Businesses in this group have lower limits of liability insurance coverage.
- Average: Due to the discrepancy between the high and low ends of cost, umbrella insurance has an average price of about $1,500 per year for a $1 million policy.
For example, a small technology firm with two staff and ten technical experts, having revenue of less than $1 million per year, can expect to pay around $450 for a $1 million umbrella policy.
How Much Does a 3 Million Dollar Umbrella Policy Cost?
There is an extensive range of costs in umbrella insurance policies and circumstances that impact the cost. One of the most influential factors is the number of underlying policies. The more policies your commercial umbrella needs to cover, the more likely you will need to file a claim under it. Another factor is your annual revenue, the number of employees, and the type of your business.
A business can still operate without a commercial umbrella insurance policy, but it is not recommended if you have a net worth beyond your homeowners or commercial auto liability coverage. Your auto liability insurance can provide compensation amounting to $500,000 per accident. It may sound like a lot, but if you cause a ten-car pileup on the freeway, $500,000 does not seem to be that much anymore. You have to check the latest insurance rates so you can make an informed decision.
Here’s an example of an umbrella insurance cost for various levels of protection:
- $150-$300 a year for a $1 million commercial umbrella policy
- $225-$375 a year for a $2 m commercial umbrella policy
- $300-$450 a year for a $3 m commercial umbrella policy
- $375-$525 a year for a $4 m commercial umbrella policy
As you can see, it only costs $400-$450 per year for $3 million umbrella policy coverage. Cover yourself for the full amount of your net worth, which can be 50% more to value for growth. In other words, if you are earning a net worth of 2 million dollars, you can avail of umbrella insurance worth $2-3 million dollars.
What is the Difference Between Umbrella Insurance and Commercial Insurance?
The main difference between these two types of insurance policies is that commercial umbrella insurance becomes active when other insurances are off while commercial insurance basically insures your business.
Is Commercial Umbrella the Same as General Liability Insurance?
Commercial umbrella insurance is additional coverage that comes over the top of your general liability insurance. In case of an unfortunate event, your general liability policy is always the first one to look at. However, if the limit on the policy is not enough, you can look further into your umbrella insurance policy.
What is Deductible of a Commercial Liability Umbrella Policy Called?
This type of deductible is usually referred to as self-insured retention or SIR.
What is Not Covered by a Commercial Umbrella Policy?
There are limits to what commercial umbrella insurance covers. Umbrella insurance doesn’t cover:
- Damages within the underlying policy limits
- Professional errors
- Employee discrimination lawsuits
- Business property damage
- Healthcare costs
- Crime and intentional acts
Are you still confused about commercial umbrella insurance, or do you need some help getting a quote for your business? Contact us today and get all the information you need fast and for free!