Imagine leaving the house on a sunny day. When it’s time to come home, you find that the sky has darkened, and it is raining hard. That’s when you remember the emergency umbrella you have stashed in your bag. Thanks to your foresight, you brave the rain unscathed.
A Commercial Umbrella Insurance policy, also known as excess liability, works the same way. It expands above your other liability policies and saves you from ruin when you happen upon one of those unexpected rainy days.
What is Umbrella Insurance?
An umbrella policy is insurance that provides liability coverage above and beyond the limits of other underlying policies. In other words, it gives you extra coverage on top what you have from other liability insurance – General Liability, Auto Liability, and others. However, an umbrella on its own will do you no good. Commercial Umbrella requires underlying liability insurance because the purpose is to extend the coverage you already have.
Most underlying policies are written in a standardized form, meaning they are created by the Department of Insurance and can only be adjusted slightly by each carrier. Umbrella policies, on the other hand, are not. There is no standardized form for Commercial Umbrella policies, which means that each insurance company creates their own umbrella policy form and decides the specifics of it. They feature similarities of course, but there are many differences between the policies of different carriers.
Most carriers' umbrella policies include worldwide coverage, which means that you have the ability to file a claim under your umbrella policy for something that happened overseas.
A Commercial Umbrella Insurance policy was needed in the case of a commercial truck driver who hit a pedestrian crossing the street. The pedestrian was seriously injured and suffered permanent brain damage. This person was a doctor, so the potential earnings that she would have made over the rest of her life was significant. The claims payout of $3.5 million exceeded the Commercial Auto limit of $2 million, so the umbrella policy paid the rest.
Who Needs Umbrella Insurance?
Although the law requires businesses to carry particular types of underlying liability policies in certain situations, there is no law requiring umbrella coverage.
Just because you are not legally obligated to maintain it does not mean that the coverage is not necessary. Arguably, everyone needs an umbrella policy, although some businesses need it more than others. Essentially, the higher the liability or likelihood that someone will sue you, the greater your need for umbrella coverage. Jobs where employees have the potential to be significantly injured are also at risk.
Those who are in the greatest need of umbrella coverage are doctors, lawyers, and those in the construction trade.
What does Umbrella Insurance cover?
As discussed earlier, the specifics of what your umbrella covers are going to depend on the underlying policies as well as the details of the policy itself, as determined by your insurance carrier. However, one major benefit of umbrella policies is that it covers defense and settlement costs resulting from a lawsuit that falls under your policy coverage.
An umbrella is primarily designed to provide extra coverage for the things you are liable for, which often involves the courtroom. In particular, there are a few types of potential lawsuits that you can find valuable coverage for through an umbrella policy. One of those types is lawsuits regarding libel, slander, and similar defamation-related incidents. If you have the proper underlying insurance, your umbrella policy can provide additional coverage to defend you against claims and settle against the other party, if necessary, up to the amount of your policy.
Another risk that an umbrella can protect against is the liability you may face as a landlord. Should something that you are held responsible for occur on a property you own, your umbrella policy can step in and cover your defense and settlement costs. Also, an umbrella can cover any payments that you are held responsible for paying as part of your liability, such as property damage and medical expenses.
How much does Umbrella Insurance cost?
There is a significant discrepancy between the low and high end of umbrella insurance. That is because no two businesses are the same, and there are a variety of risks that each company is exposed to. The amount of insurance purchased is also a factor. Some may need only $1 million while others may require as much as $100 million or more in umbrella coverage. Even among similar businesses, the prices vary depending on different factors. As we look at some overall costs, keep in mind that there is no way to determine where you would fall on this scale without first getting a quote for umbrella insurance.
With a limit of $1 million of coverage, here are some general guidelines:
- High End: The high end of umbrella costs $2,500 per year and above. Those who fall into this category have a large professional liability risk such as doctors, lawyers, and the construction industry.
- Low End: The low end of umbrella insurance costs can be as little as $200 to $400 a year. Those in this group have a low limit of liability, such as individuals who do housekeeping services and only insure themselves.
- Average Cost: Because of the discrepancy between the high and low ends of cost, the average amount for umbrella insurance is about $1,500 a year for a $1 million policy. However, many businesses pay less than that with the median premium falling closer to $900 a year. An example of an average business that would belong in this range might be a medium-sized technology or accounting firm.
For example, a small technology firm with two office staff and around ten technical experts with a revenue of less than a $1 million annually would expect to pay around $450 for a $1 million umbrella policy.$450 for a $1 million umbrella policy.
There is a large range in cost in umbrella policies and factors that influence the cost. One of the most significant considerations is the number of underlying policies. The more policies that your umbrella needs to cover, the more likely it is that you will need to make a claim under it. Other factors include your annual revenue, number of employees, and type of business.
What is not covered under Umbrella Insurance?
As with most types of insurance, umbrella policies do not cover anything that was done intentionally by the customer or any claim that arises out of a crime committed by the client.
An umbrella policy does not cover damages to your building, personal property, or anything else owned by your business. Also, an umbrella will not include anything that your underlying insurance policies do not cover with few exceptions. These are exclusive to an individual commercial umbrella policy, state, and insurance company.
One of the important things to remember is that each umbrella policy is unique in coverage, so talk with your agent or insurance company for the specifics of what your umbrella policy will cover before purchasing.