Amazing Hack For A Successful Business: Commercial Umbrella Insurance

TLTR: This article will discuss what commercial umbrella insurance is, why you need it and who needs it the most. Additionally, the article also includes the coverage area, cost, and cost factors.

Many businesses require you to have insurance before you sign contracts to work with them. For example, a premier design studio seeks to collaborate with a group of builders for re-modeling a section of a mall. In this partnership, both parties are going to require contracts that include an insurance clause. So, let us say that the design studio is required to maintain a $3 million per occurrence limit for workers compensation claim.

If the design studio’s employment practices liability insurance or workers compensation insurance has a limit of less than $3 million then they can satisfy the contract by purchasing commercial umbrella insurance with the required amount of limit.

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What Is Commercial Umbrella Insurance Coverage

Commercial umbrella insurance coverage is a type of business liability policy that protects your company against exposure to large financial losses. It provides protection for the types of exposures that are not covered under traditional commercial general liability policies, such as errors and omissions (E&O) or product-liability claims.

The policy provides protection over the coverage limits of primary policies. When costs for claims surpass your policy limit, an additional layer of coverage is added through commercial umbrella liability or excess liability insurance.

These policies are not standalone and can only be obtained if you have one or more commercial coverages in place.

The policy is useful to cover losses such as:

Property damage
Vehicle damage
Legal expenses
Medical payments
Any other form of financial costs that cannot be covered by any type of existing policy on its own.

As a business owner, you may feel like you have enough protection available. However, without commercial umbrella insurance, your most vulnerable areas are likely to be exposed.  An example would be if a company has a $500 million CGL limit and an umbrella policy that limits its coverage to, for instance, the first $50 million in aggregate.

If the business is sued by someone who claims they are injured because of product defects or lack of safety warnings on packaging, then it would be liable up to only $250 million ($500 – $250 = $250 million).

By and large, the company would need to pay for any damages in excess of its policy limits.

Basically, this is why it is important to ensure your business has sufficient coverage and that you are aware of what risks may not be covered by a CGL policy or an umbrella insurance plan.

What-Does-Commercial Umbrella Insurance Add To

What Does Commercial Umbrella Insurance Add To

Commercial umbrella insurance provides additional coverage for a number of commercial insurance policies. Some of them are:

Commercial General Liability Insurance

It would be a smart financial move to purchase commercial umbrella insurance for commercial general liability insurance (CGLI). So, umbrella policies are insurance that can work in conjunction with CGLI to protect against third-party claims for property damage and bodily injury.

This means if the limit of $1 million is exceeded by an outside claim, but not exhausted due to your deductible amount being lower than this level, it will be covered under the umbrella coverage which has higher limits.

Workers Compensation Insurance

According to National Safety Council, the average cost of a workers’ comp claim exceeds $40,000 per occurrence, per worker. Imagine having a workplace hazard, and more than one employee files for workers claim. In this case, the payout will be tricky considering the average workers’ compensation insurance has a limit of about $100,000. In this case, commercial umbrella insurance would come in handy.

Additionally, some injuries sustained on the job are not actually covered by workers’ compensation insurance. This is where umbrella policies come in – you get all-risk protection for when it exceeds those aforementioned limits is or even to cover some other potential liabilities from a single accident at work.

Commercial Auto Insurance

A commercial auto insurance policy protects you from third-party claims due to accidents. Your umbrella policy is like an extra safety net for your business in case a claim exceeds the limit of coverage under your standard liability protection plan.

Commercial Property Insurance

Obviously, buildings are one of the most expensive assets of a business. Commercial property insurance is vital to businesses and an umbrella policy will add an extra cushion to your fall. According to the All City Adjusting, the average range of a commercial building reconstruction is anywhere between $3,000 to $40,000.

So, adding commercial umbrella insurance to your business plan will definitely help in covering your property insurance needs.

Note: Commercial umbrella insurance can essentially be added to any commercial insurance policy. The above mentioned are just some of the most popular ones which should have the extra coverage. If the policy you want umbrella insurance for isn’t mentioned here, ask your insurance provider about it.

Some Exclusion

Like any other insurance policy, there are some exclusions that a standard commercial umbrella insurance policy won’t provide coverage for. These exclusions are as the following:

Errors and Omissions Insurance
Professional Liability Insurance
Malpractice Insurance
Employment Practices Liability

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Who Needs Commercial Umbrella Insurance

Almost all kinds of businesses require commercial umbrella insurance. However, these are some categories that can really benefit from the policy.

Small Businesses 

Starting a business sounds nice but has many expenses that you need to think through. Things such as workspace, legal fees, employee payroll, credit cards, and other commercial expenses can be financially draining. According to Business News Daily, even a home-based business model can cost up to $2,000 to $5,000 to just set up.

Small companies have a limited amount of funds to pay for expenses which include damages or liabilities. For example, if you’re the owner or manager of a small business with assets totaling $500,000 and an income reachable up to only $100,000 annually, your company would be unable to meet any large liability claims without going into bankruptcy should it arise.

As a small business owner, you should consider having a commercial umbrella insurance policy along with other commercial insurance plans.

Startups 

Sure, there is commercial insurance for startups available but let’s be real, startups are expensive to establish. Your average startup insurance is a necessary coverage to have but it can add a financial dent to your business plan. In this case, having commercial umbrella insurance with coverage can really help you save some money.

When startups are just getting off the ground, they don’t yet have much in terms of revenue or assets on their balance sheets that could help cover liabilities from risks. It is also a good idea for startups to purchase general liability coverage and add an umbrella policy that will provide protection against most risks they may face.

Businesses With Low Profitability 

If you have an average annual profit margin of only, say, $50,000 or less per year and your company is struggling financially. In this case, commercial umbrella insurance should be considered because it can protect these companies from large losses due to one major lawsuit settlement.

Similarly, if you operate a business where revenue fluctuates greatly depending on time of year – such as retail businesses like Christmas tree shops – then this type of insurance would also prove helpful during those times when profits are lower than usual and increased risk exists.

Inherited Businesses 

If you have inherited a business from someone close to you (such as your parents) then the first thing you need to do is check the insurance coverage. If they did not purchase commercial umbrella insurance, then it would be wise for the next generation of owners or managers to do so.

Sometimes, businesses may have liabilities that show consequences after years. This can often be the case with inherited businesses as they have a tendency of running for decades. Make sure you plan ahead!

Who-Needs Commercial-Umbrella Insurance

How Much Does Commercial Umbrella Insurance Cost 

Commercial umbrella insurance can cost anywhere between $400 to $1,500 for small businesses and startups. For larger businesses, the cost ranges between $1,500 to $2,500.

There are many factors that determine the cost of the policy. These factors are as the following:

Business Type

The industry you are working in largely affects the amount you’ll be paying for this policy. According to Fit Small Business, here is a clear illustration of the differences:

Industry Annual Premium
Building Design $1,601
Information Technology (IT) Services $1,212
Restaurants $909
Retail $758
Real Estate $728
Finance & Accounting $600
Healthcare $494
Personal Care $478

Coverages In Place

Commercial umbrella insurance only works if you have other commercial insurance policies in place. The cost also depends on other commercial policies. So, if you have comprehensive coverage that includes commercial property, commercial auto, and workers’ compensation insurance then your prices are likely to go down.

Claims History

Insurance companies care about your claim history. If your firm has had multiple claims in the past then it is likely that you may get a higher premium quotation.

Number of Employees

If your company has a larger number of employees, you become more vulnerable to larger workers’ compensation claims among other financial risks. So, the more employees you have the higher your commercial umbrella insurance price goes up.

Insurance Carrier

Different insurance carriers provide you with an array of options that can be of varying costs. Comparing policies from different carriers and finding a personalized quote for yourself is an effective method.

We can offer you quotes from more than 100 insurance carriers. You can pick what is the best for you!

Conclusion

Commercial umbrella insurance is a type of coverage that protects your company in the event it incurs liability. It is recommended for anyone who has assets, like employees or property, and revenue to protect.

When you’re looking for commercial umbrella insurance, it is important to make sure that your coverage is tailored to meet the needs of your company. That includes understanding what types of protection and level of liability are necessary for your industry.  Get in touch with us today if you’re not sure how much coverage you need or want more information on our rates!

Frequently Asked Questions (FAQs)

Is It Mandatory to Purchase a Commercial Umbrella or Excess Liability Insurance Policy?

It is not mandatory to purchase an umbrella or excess liability insurance policy. However, there may arise a situation where your business will require you to have a commercial umbrella policy. For example, if your business deals with government contracts, you will need such coverages as per their contractual requirements.

Does My Business Need An Umbrella Insurance Policy?

If your business regularly operates in a high-risk industry such as construction, healthcare, or manufacturing, you might want to consider purchasing an umbrella insurance policy. Purchasing an umbrella policy can seem like an unnecessary expense for some business owners. But if a lawsuit can put the future of your business at stake, then it might be wise to consider purchasing an umbrella policy.

How Much Umbrella Insurance Do I Need?

It is advisable to get an umbrella policy that at least covers the net worth of your business. Thus, the coverage you require depends upon the size of your business, the number of employees, and the type of business.

How Do I Buy A Commercial Umbrella Insurance Policy For My Business?

A commercial umbrella insurance policy requires a detailed assessment of risks as it differs depending on the nature of the business. To get the best umbrella policy for your business, it is best to have an expert evaluate all of your risks, which coverages would be right for you, and a variety of carrier options.

What Is The Difference Between Umbrella Insurance And Excess Insurance?

People use commercial umbrella liability and excess liability insurance interchangeably, but they are different. Both these policies have a similar purpose — extending the limits of standard liability coverage. But the kind of coverage they provide is what differentiates them.

One of the main differences between umbrella liability and excess liability is that umbrella coverage can be applied to multiple policies whereas excess liability cannot. Additionally, umbrella liability provides coverage for claims that are not included in the primary policy. But excess liability is restricted to coverages included in the main policy.

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