Commercial Umbrella Insurance: Definition, Cost, Features & Providers

 

Commercial umbrella insurance provides businesses with added liability coverage when claims exceed the limits of certain primary insurance policies, such as general liability or commercial auto. Most umbrella policies provide an extra $1 million of coverage. The cost of commercial umbrella insurance varies, but most small businesses get annual coverage for $500 to $1,500.

 

Commercial Umbrella Insurance Providers

 

Every major national carrier that offers small business insurance also offers commercial umbrella insurance. Some carriers will only underwrite commercial liability policies if the excess coverage is offered on underlying policies already held with that carrier. When working with an insurance provider for umbrella liability insurance, make sure they understand the coverage of your existing policies first.

 

How Industry Affects Cost of Umbrella Insurance for Business

 

Liability risks to businesses differ based on what type of work you do, overall sales of products, and even foot traffic into your location. Insurance carriers consider this as well as their experience and appetite to work with specific industries. While contractors generally have higher liability risks than accountants, some carriers are more eager to work with contractors, and thus have better premium pricing.

 

How Commercial Umbrella Insurance Works

 

Commercial umbrella insurance is a policy that increases coverage limits over other policies and is only used if needed. A commercial umbrella policy is only used in insurance claims if the policies under it are no longer able to protect the risk, meaning they have used all the protections they are allowed to and there is still liability exposure.

 

For example, the commercial umbrella policy may have general liability, commercial auto, and workers’ compensation policies under it. If a company box truck with liability coverage of $250,000 is responsible for a 10-car pile-up on an icy road, the damages could be $800,000. The commercial auto covers the first $250,000 up to its policy limits and then the umbrella kicks in to pay the rest.

 

Umbrella Insurance vs Excess Coverage

 

While many people will use the terms umbrella and excess coverage interchangeably, they represent different ways to increase risk protection. Umbrella coverage not only increases the coverage on designated liability policies, it broadens it. For example, an umbrella policy may extend the geographic region where protection is offered for policyholders.

Excess coverage only increases the underlying limits of a policy with no additional broad coverage. In some cases, excess coverage is more restrictive than the existing underlying limits, such as limiting the conditions under which a claim is covered.

 

Who Commercial Umbrella Insurance Is Right For

 

Any business with liability exposure can benefit from having a commercial umbrella policy. Small business owners who interact directly with the public on their own commercial property or on a third-party’s property should assess their need for umbrella coverage. Certain business operations increase chances of high claims or lawsuits.

 

Typical scenarios where commercial umbrella insurance is needed include:

 

•Commercial property is open to the public: Any business with foot traffic has a significant risk exposure that the standard limits on commercial general liability may not be sufficient to cover. For example, restaurants may have wet floors that patrons slip on.

•Business conducted on clients’ property: Service providers, such as plumbers, handymen, or construction contractors, do most of their work on other people’s property, increasing the risk of third-party bodily injury or significant property damage.

•Employees use their own cars for business: Businesses such as life insurance that require representatives or their employees to use their own cars for work purposes can increase the risk of at-fault accidents.

•Clients require high coverage requirements: Contracted work where clients require higher than existing coverage limits on one or more insurance policies.

 

The biggest factors that drive the need for commercial umbrella insurance are industry type and exposure to the public. For example, construction contractors work mostly on somebody else’s property and they often use dangerous machinery. These factors increase their risk of third-party liability claims, such as bodily injury or property damage, and their need for umbrella coverage.

 

Business Umbrella Insurance Features

 

Commercial umbrella insurance pays claims that exceed coverage liability limits from other policies. This means that the policy under the umbrella pays up to its individual limits first, with the umbrella adding coverage when necessary. Small business insurance policies that commercial umbrella insurance covers include general liability, commercial vehicle insurance, workers’ compensation insurance, and products liability coverage.

 

Insurance carriers underwrite these policies by considering all other commercial insurance the small business will have under the umbrella, including policies held with outside carriers. Once you have a commercial umbrella policy, all eligible underlying policies are covered. Small business owners can’t exclude a policy such as workers’ compensation; all policies are automatically covered once the umbrella is in force.

 

What Commercial Umbrella Insurance Covers

 

Commercial umbrella insurance adds coverage to most existing business insurance policies that have liability components. It adds additional coverage to the liability components of those policies that kick in when the underlying policy meets its coverage limits. Having an umbrella is often the most cost-effective way to get higher liability coverage on multiple policies.

 

Excess Claims on Commercial General Liability Insurance

 

A commercial general liability (CGL) policy covers third-party liability for bodily injury, property damage, and personal and advertising injury. General liability claims often happen after slip-and-falls or similar incidents resulting in bodily injury or property damage. Claims can be expensive, creating huge financial exposure to companies. Commercial umbrella insurance adds coverage to these liability limits.

Most third-party risk exposure rises when your customers do business with you on your premises. For example, bodily injury or property damage to your customers can potentially turn into an expensive lawsuit that can take the cost of claims above the standard CGL limit of $1 million. To protect against this risk, umbrella insurance is necessary.

 

Excess Claims on Workers’ Compensation

 

Workers’ compensation insurance pays for medical care, rehabilitation services, and lost wages for employees injured while working. In some cases, employee claims can potentially require extended coverage from commercial umbrella insurance. Commercial umbrella insurance extends coverage to assist in covering not just claims exceeding coverage but lawsuit defenses arising from workers’ compensation claims.

 

Excess Claims on Commercial Auto Insurance

 

Commercial auto insurance has several components that cover third-party liability from at-fault accidents as well as protecting the vehicle insured. A commercial umbrella policy provides additional protection to the liability portion of the commercial auto policy. A commercial auto policy with $250,000 in liability limits gets the added coverage from the umbrella policy.

 

Excess Claims on Hired & Non-owned Auto Liability Insurance

 

Hired and non-owned auto liability insurance covers damage caused by the cars your business uses but doesn’t own. This coverage would include vehicles you lease or rent, as well as for your employees’ cars when they run errands for the business. A commercial umbrella policy would extend the liability coverage limit on this type of insurance if the employee injures someone or damages property in an at-fault accident while working.

 

What Commercial Umbrella Insurance Does Not Cover

 

Commercial umbrella insurance won’t cover claims if you don’t have the appropriate underlying policy in place. For example, if you don’t have a commercial general liability (CGL) policy, your umbrella insurance won’t cover CGL claims. Additionally, there are excluded policies that a commercial umbrella policy will not cover.

 

Commercial umbrella insurance commonly excludes things like:

 

•Commercial property insurance: Does not apply to property insurance claims including office space, equipment, or inventory.

•Errors and omissions (E&O) and professional liability insurance: Excludes claims for professional mistakes or things that you overlook in the course of doing business, which are covered by E&O insurance.

•Claims already covered by underlying policies: Must meet underlying policy coverage limits before the umbrella coverage starts paying.

•Claims that you don’t have primary coverage for: Excludes claims from liability if no underlying policy exists. If you don’t have a general liability policy and someone falls and sues, your umbrella won’t pay a dime.

•Employee discrimination lawsuits: Does not pay claims and lawsuits arising from unfair and discriminatory employer practices normally insured via an employment practices liability insurance policy.

 

Review all policies to make sure you have the most important coverage for the risks you are most susceptible to. At the same time, understand exclusions so you can find either specialty insurance or develop employment practices to mitigate those risks.

 

Commercial Umbrella Insurance Policy Example

 

As an example, let’s say a customer trips and falls at your place of business and they incur a serious bodily injury that leads to medical costs and an expensive lawsuit. The total claims and settlement charges are $1.2 million. If the limit on your general liability insurance is $1 million, an umbrella policy could cover the extra $200,000. However, if you have no general liability insurance, your umbrella insurance will cover zero claim costs.

 

Pros & Cons of Business Umbrella Insurance

 

Purchasing a commercial umbrella policy is completely optional. The factors small business owners should consider when making their decision include what the existing coverage limits are, how many policies exist, and whether or not they are at the same carrier. These factors contribute to the pros and cons commercial umbrella insurance costs.

 

Pros of Commercial Umbrella Insurance

 

The pros of commercial umbrella insurance include:

 

•Costs less than increasing limits on all policies: Reduces the need to increase multiple policy premiums with one, often reasonably priced policy covering all relevant policies.

•May provide discounts on underlying policies: Discounted options are offered by many providers when commercial umbrella insurance is at the same provider.

•Covers gaps in some liability options: May provide liability coverage for vacant property and empty lots where no other coverage is required.

 

Cons of Commercial Umbrella Insurance

 

The cons of commercial umbrella insurance include:

 

•Mandates coverage for underlying policies: Requires minimum liability coverage elections on all underlying policies. General liability may require $500,000 while commercial auto may require $250,000 or more depending on the carrier’s rules.

•Can increase cost of underlying policies: Forces increased costs for underlying policies with low liability coverage options, thus increasing some policy prices to meet umbrella eligibility.

•Cumbersome when policies are at multiple carriers: Underwriting and pricing becomes cumbersome when policies, such as general liability and commercial auto, are held at different carriers, often adding surcharges to the annual premiums of the umbrella policy.

 

Tips on Applying for Umbrella Insurance for Business

 

Here are three tips to know when you’re applying for commercial umbrella insurance:

 

1. Gather the Appropriate Information Before You Apply

 

Gathering the right information about existing insurance policies will help the insurance agent, broker, or underwriter determine if umbrella insurance is necessary. Also, being accurate and honest will not only help assess your risk, but may also prevent you from being denied coverage for a false statement on the application.

 “A business’ first line of defense for insurance will be the primary insurance types, such as general liability, employer liability (which is part of workers’ compensation), and commercial vehicle insurance. Although small businesses don’t always need umbrella insurance to extend coverage limits, they sometimes use it as a cost-savings tool. Let’s say you’re on a budget, and you need more coverage than a primary line of liability insurance offers. Adding umbrella insurance can cost less than increasing the limits on your other policies. For example, adding an umbrella policy can be less expensive than increasing the limit on the general liability coverage.”

2. Get the Right Coverage Amount

 

Confirm that all policies that will be under the umbrella have the right policy liability coverage. If they don’t, providers may surcharge the umbrella policy or deny any claims for not adhering to the requirements of the commercial umbrella policy. If your policies are all at the same carrier, this is easy, but if you have policies at multiple carriers, confirm requirements with the umbrella insurance provider.

 “Make sure primary limits are adequate as required by the umbrella carrier. Inadequate limits will lead to a huge gap in coverage or lack of the umbrella coverage responding. Also know and understand if the policy has a self-insured retention. This is an amount that is to be paid by the insured before the umbrella insurer will respond. This is not like a deductible that is subtracted from the amount to be paid, but must be paid up by the insured.”

 

3. Use an Agent or Broker Who Knows Your Business

 

Commercial umbrella insurance is not industry-specific coverage, thus the need and pricing for an umbrella policy will differ among industry types. When shopping for umbrella coverage, be sure to look for an agent or broker who understands the risks of your industry. They can also help you get the ideal coverage limits for your particular risk exposures.

 

Commercial Umbrella Insurance Frequently Asked Questions (FAQs)

 

Figuring out how commercial umbrella insurance fits into all your insurance and mitigation strategies can get overwhelming. Below are a few commonly asked questions. If you still have questions after reading the most common ones asked below, feel free to leave a comment or visit our forum.

 

Do I need a commercial umbrella policy?

 

A commercial umbrella policy is not required for a business for licensing or permits. Even if a client requests higher coverage, a small business owner may choose to increase limits on existing policies. However, if a business has more than one policy with liability coverage, it is smart business to get a commercial umbrella policy.

 

How much does umbrella insurance cost?

 

Most small business owners can expect to pay anywhere from $500 to $1,500 annually for umbrella liability insurance. Prices are typical for policies with $1 million of per occurrence limits and vary depending on the industry and claims history of small business owners.

 

What is the difference between umbrella & excess liability coverage?

 

The terms excess coverage and umbrella policies are often used interchangeably, but do have a significant distinguishing factor. Excess coverage just increases liability coverage in an underlying policy, while an umbrella policy may broaden coverage. An example is expanding the geographic coverage area by an umbrella policy.

 

Does umbrella cover property damage?

 

Umbrella insurance will extend coverage for third-party property damage claims but does not extend coverage for business personal property. For example, if a plumber’s van had its brakes fail, causing it to collide into a million-dollar mansion, the mansion is covered but the van and tools are not.

 

Bottom Line

 

While every small business owner needs insurance, not every owner needs commercial umbrella insurance. In some cases, buying umbrella insurance is cheaper than increasing the limits on existing policies. If you need help assessing your risk exposures or determining your need

for umbrella liability insurance, speak with an agent or broker.

 

Finding a carrier that understands your business’ industry and specific risks means you have someone to guide you on the right coverage needs. To make sure you’re properly insured, reach out to The Hartford. Their specialized agents have been assisting small business owners in getting the right coverage for over 30 years. Get your free, no obligation quote in minutes.

 

How Industry Affects Cost of Umbrella Insurance for Business

 

Liability risks to businesses differ based on what type of work you do, overall sales of products, and even foot traffic into your location. Insurance carriers consider this as well as their experience and appetite to work with specific industries. While contractors generally have higher liability risks than accountants, some carriers are more eager to work with contractors, and thus have better premium pricing.

 

How Commercial Umbrella Insurance Works

 

Commercial umbrella insurance is a policy that increases coverage limits over other policies and is only used if needed. A commercial umbrella policy is only used in insurance claims if the policies under it are no longer able to protect the risk, meaning they have used all the protections they are allowed to and there is still liability exposure.

For example, the commercial umbrella policy may have general liability, commercial auto, and workers’ compensation policies under it. If a company box truck with liability coverage of $250,000 is responsible for a 10-car pile-up on an icy road, the damages could be $800,000. The commercial auto covers the first $250,000 up to its policy limits and then the umbrella kicks in to pay the rest.

 

Umbrella Insurance vs Excess Coverage

 

While many people will use the terms umbrella and excess coverage interchangeably, they represent different ways to increase risk protection. Umbrella coverage not only increases the coverage on designated liability policies, it broadens it. For example, an umbrella policy may extend the geographic region where protection is offered for policyholders.

Excess coverage only increases the underlying limits of a policy with no additional broad coverage. In some cases, excess coverage is more restrictive than the existing underlying limits, such as limiting the conditions under which a claim is covered.

 

Who Commercial Umbrella Insurance Is Right For

 

Any business with liability exposure can benefit from having a commercial umbrella policy. Small business owners who interact directly with the public on their own commercial property or on a third-party’s property should assess their need for umbrella coverage. Certain business operations increase chances of high claims or lawsuits.

 

Typical scenarios where commercial umbrella insurance is needed include:

 

•Commercial property is open to the public: Any business with foot traffic has a significant risk exposure that the standard limits on commercial general liability may not be sufficient to cover. For example, restaurants may have wet floors that patrons slip on.

•Business conducted on clients’ property: Service providers, such as plumbers, handymen, or construction contractors, do most of their work on other people’s property, increasing the risk of third-party bodily injury or significant property damage.

•Employees use their own cars for business: Businesses such as life insurance that require representatives or their employees to use their own cars for work purposes can increase the risk of at-fault accidents.

•Clients require high coverage requirements: Contracted work where clients require higher than existing coverage limits on one or more insurance policies.

 

The biggest factors that drive the need for commercial umbrella insurance are industry type and exposure to the public. For example, construction contractors work mostly on somebody else’s property and they often use dangerous machinery. These factors increase their risk of third-party liability claims, such as bodily injury or property damage, and their need for umbrella coverage.

 

Business Umbrella Insurance Features

 

Commercial umbrella insurance pays claims that exceed coverage liability limits from other policies. This means that the policy under the umbrella pays up to its individual limits first, with the umbrella adding coverage when necessary. Small business insurance policies that commercial umbrella insurance covers include general liability, commercial vehicle insurance, workers’ compensation insurance, and products liability coverage.

 

Insurance carriers underwrite these policies by considering all other commercial insurance the small business will have under the umbrella, including policies held with outside carriers. Once you have a commercial umbrella policy, all eligible underlying policies are covered. Small business owners can’t exclude a policy such as workers’ compensation; all policies are automatically covered once the umbrella is in force.

 

What Commercial Umbrella Insurance Covers

 

Commercial umbrella insurance adds coverage to most existing business insurance policies that have liability components. It adds additional coverage to the liability components of those policies that kick in when the underlying policy meets its coverage limits. Having an umbrella is often the most cost-effective way to get higher liability coverage on multiple policies.

 

Excess Claims on Commercial General Liability Insurance

 

A commercial general liability (CGL) policy covers third-party liability for bodily injury, property damage, and personal and advertising injury. General liability claims often happen after slip-and-falls or similar incidents resulting in bodily injury or property damage. Claims can be expensive, creating huge financial exposure to companies. Commercial umbrella insurance adds coverage to these liability limits.

Most third-party risk exposure rises when your customers do business with you on your premises. For example, bodily injury or property damage to your customers can potentially turn into an expensive lawsuit that can take the cost of claims above the standard CGL limit of $1 million. To protect against this risk, umbrella insurance is necessary.

 

Excess Claims on Workers’ Compensation

 

Workers’ compensation insurance pays for medical care, rehabilitation services, and lost wages for employees injured while working. In some cases, employee claims can potentially require extended coverage from commercial umbrella insurance. Commercial umbrella insurance extends coverage to assist in covering not just claims exceeding coverage but lawsuit defenses arising from workers’ compensation claims.

 

Excess Claims on Commercial Auto Insurance

 

Commercial auto insurance has several components that cover third-party liability from at-fault accidents as well as protecting the vehicle insured. A commercial umbrella policy provides additional protection to the liability portion of the commercial auto policy. A commercial auto policy with $250,000 in liability limits gets the added coverage from the umbrella policy.

 

Excess Claims on Hired & Non-owned Auto Liability Insurance

 

Hired and non-owned auto liability insurance covers damage caused by the cars your business uses but doesn’t own. This coverage would include vehicles you lease or rent, as well as for your employees’ cars when they run errands for the business. A commercial umbrella policy would extend the liability coverage limit on this type of insurance if the employee injures someone or damages property in an at-fault accident while working.

 

What Commercial Umbrella Insurance Does Not Cover

 

Commercial umbrella insurance won’t cover claims if you don’t have the appropriate underlying policy in place. For example, if you don’t have a commercial general liability (CGL) policy, your umbrella insurance won’t cover CGL claims. Additionally, there are excluded policies that a commercial umbrella policy will not cover.

Commercial umbrella insurance commonly excludes things like:

•Commercial property insurance: Does not apply to property insurance claims including office space, equipment, or inventory.

•Errors and omissions (E&O) and professional liability insurance: Excludes claims for professional mistakes or things that you overlook in the course of doing business, which are covered by E&O insurance.

•Claims already covered by underlying policies: Must meet underlying policy coverage limits before the umbrella coverage starts paying.

•Claims that you don’t have primary coverage for: Excludes claims from liability if no underlying policy exists. If you don’t have a general liability policy and someone falls and sues, your umbrella won’t pay a dime.

•Employee discrimination lawsuits: Does not pay claims and lawsuits arising from unfair and discriminatory employer practices normally insured via an employment practices liability insurance policy.

Review all policies to make sure you have the most important coverage for the risks you are most susceptible to. At the same time, understand exclusions so you can find either specialty insurance or develop employment practices to mitigate those risks.

 

Commercial Umbrella Insurance Policy Example

 

As an example, let’s say a customer trips and falls at your place of business and they incur a serious bodily injury that leads to medical costs and an expensive lawsuit. The total claims and settlement charges are $1.2 million. If the limit on your general liability insurance is $1 million, an umbrella policy could cover the extra $200,000. However, if you have no general liability insurance, your umbrella insurance will cover zero claim costs.

 

Pros & Cons of Business Umbrella Insurance

 

Purchasing a commercial umbrella policy is completely optional. The factors small business owners should consider when making their decision include what the existing coverage limits are, how many policies exist, and whether or not they are at the same carrier. These factors contribute to the pros and cons commercial umbrella insurance costs.

Pros of Commercial Umbrella Insurance

 

The pros of commercial umbrella insurance include:

 

•Costs less than increasing limits on all policies: Reduces the need to increase multiple policy premiums with one, often reasonably priced policy covering all relevant policies.

•May provide discounts on underlying policies: Discounted options are offered by many providers when commercial umbrella insurance is at the same provider.

•Covers gaps in some liability options: May provide liability coverage for vacant property and empty lots where no other coverage is required.

 

Cons of Commercial Umbrella Insurance

The cons of commercial umbrella insurance include:

•Mandates coverage for underlying policies: Requires minimum liability coverage elections on all underlying policies. General liability may require $500,000 while commercial auto may require $250,000 or more depending on the carrier’s rules.

•Can increase cost of underlying policies: Forces increased costs for underlying policies with low liability coverage options, thus increasing some policy prices to meet umbrella eligibility.

•Cumbersome when policies are at multiple carriers: Underwriting and pricing becomes cumbersome when policies, such as general liability and commercial auto, are held at different carriers, often adding surcharges to the annual premiums of the umbrella policy.

 

Tips on Applying for Umbrella Insurance for Business

 

Here are three tips to know when you’re applying for commercial umbrella insurance:

 

1. Gather the Appropriate Information Before You Apply

Gathering the right information about existing insurance policies will help the insurance agent, broker, or underwriter determine if umbrella insurance is necessary. Also, being accurate and honest will not only help assess your risk, but may also prevent you from being denied coverage for a false statement on the application.

 

 “A business’ first line of defense for insurance will be the primary insurance types, such as general liability, employer liability (which is part of workers’ compensation), and commercial vehicle insurance. Although small businesses don’t always need umbrella insurance to extend coverage limits, they sometimes use it as a cost-savings tool. Let’s say you’re on a budget, and you need more coverage than a primary line of liability insurance offers. Adding umbrella insurance can cost less than increasing the limits on your other policies. For example, adding an umbrella policy can be less expensive than increasing the limit on the general liability coverage.”

2. Get the Right Coverage Amount

Confirm that all policies that will be under the umbrella have the right policy liability coverage. If they don’t, providers may surcharge the umbrella policy or deny any claims for not adhering to the requirements of the commercial umbrella policy. If your policies are all at the same carrier, this is easy, but if you have policies at multiple carriers, confirm requirements with the umbrella insurance provider.

 “Make sure primary limits are adequate as required by the umbrella carrier. Inadequate limits will lead to a huge gap in coverage or lack of the umbrella coverage responding. Also know and understand if the policy has a self-insured retention. This is an amount that is to be paid by the insured before the umbrella insurer will respond. This is not like a deductible that is subtracted from the amount to be paid, but must be paid up by the insured.”

3. Use an Agent or Broker Who Knows Your Business

Commercial umbrella insurance is not industry-specific coverage, thus the need and pricing for an umbrella policy will differ among industry types. When shopping for umbrella coverage, be sure to look for an agent or broker who understands the risks of your industry. They can also help you get the ideal coverage limits for your particular risk exposures.

 

Commercial Umbrella Insurance Frequently Asked Questions (FAQs)

 

Figuring out how commercial umbrella insurance fits into all your insurance and mitigation strategies can get overwhelming. Below are a few commonly asked questions. If you still have questions after reading the most common ones asked below, feel free to leave a comment or visit our forum.

Do I need a commercial umbrella policy?

 

A commercial umbrella policy is not required for a business for licensing or permits. Even if a client requests higher coverage, a small business owner may choose to increase limits on existing policies. However, if a business has more than one policy with liability coverage, it is smart business to get a commercial umbrella policy.

Marie V. Berkey Insurance Agency, Inc.

 Independent Insurance Agency

21151 S. Western Ave., Suite 240

Torrance, CA  90501

Main Line:  310-421-9698

E-Fax:  310-388-0835  |  Cell:  310-383-1106

Lic. Nos.:  0G44971 & 0E01867

Email:  mberkey@mvbinsagency.com

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