Thinking about worst-case scenarios can be frightening and unnerving. When your business is cruising along and doing well, everything is great. But sometimes things happen and disaster can strike. Of course, you have business insurance to protect your company, but what if a claim comes along and blows your insurance limits right out of the water? Being stuck in a situation in which you don’t have enough insurance would not be good. However, there is a type of coverage that can supplement your current levels of insurance and even provide coverage in areas you don’t have it. It’s called umbrella insurance, and no, it’s not insurance for umbrellas (the name is a bit misleading.) We’ll explain what umbrella insurance is, how it can protect your business, and why you shouldn’t overlook it when you’re buying business insurance.
What is commercial umbrella insurance?
Commercial umbrella insurance, or excess liability insurance, can protect your business from gaps in your coverage and from expensive lawsuits. Basically, businesses use umbrella insurance to expand and back up the coverage they have with their existing policies. It’s a way to add extra coverage to your insurance.
What does commercial umbrella insurance do?
There are a few ways in which umbrella insurance can help your business. Umbrella insurance…
1. Provides extra coverage if you have a claim that goes above the limits of your existing policy.
Umbrella insurance is, to put it simply, extra coverage that sits on top of your underlying insurance policy. It can help protect your business from huge lawsuits that could be financially devastating to a business by adding coverage to your policy.
It’s easiest to illustrate with an example.
Let’s say that you have a whopper of a general liability claim – like a $4 million claim. It’s not good. Your business, of course, has general liability insurance, but your policy is only for $1 million. So, to do some quick math, that means there’s still $3 million to be accounted for. Now, let’s say that your business has a $5 million umbrella policy. What would happen is that your general liability insurance would pay its $1 million and your umbrella would then pay the remaining $3 million. So, there you go – an example of how umbrella insurance can help you out of a tight spot.
2. Can give you coverage in areas where you don’t have coverage.
If you have a claim in an area that’s not covered by your underlying policies, umbrella insurance can provide you with the coverage you need. But if you’re using your umbrella insurance in this way, you will have to pay a self-insured retention (or SIR) which is similar to a deductible. Basically, it means that you’re responsible for paying a portion of the claim. SIRs usually start at around $10,000.
3. Can cover expenses if you’ve hit the aggregate limit on your policy.
If your commercial general liability policy has an aggregate limit of $2 million, that means that the maximum amount your policy will pay out is $2 million. Let’s say you only have $1 million left on the policy. That seems like a lot of money…until you get a $1.4 million claim. So, where’s the $400,000 going to come from? If you have umbrella insurance, it would swoop in and save the day.
Umbrella insurance and lawsuits.
Our society has become more and more likely to launch lawsuits, can come with some hefty financial judgments or damages. Even if your business has done absolutely nothing wrong, it’s expensive to defend yourself against the claim. Legal defense fees can be super expensive and potentially devastating to a business. And what if your business is found liable? You could be facing court-ordered damages or a settlement. And that’s an entirely new set of expenses. But that’s where umbrella can help you by covering those legal fees and other financial obligations.
Umbrella insurance is a way for business owners to get an additional measure of protection for their companies. It gives extra liability coverage that sits on top of your existing insurance policies. Yes, the odds of a huge, catastrophic claim happening to your business might be low, but it’s still important to anticipate and prepare for the worst. You never know what’s going to happen (unless you can see the future, which would be great), and umbrella insurance can protect your business.
If you’d like to save money on your business insurance, we can help. Our team of agents can help you shop for the best possible rate for your insurance – and we’ll do our best to make insurance easy. All you have to do to get business insurance quotes is fill out our online form or give us a call today.