Commercial Umbrella Insurance: What Is It? Do You Need It?

The term “umbrella insurance” is a good descriptor – it’s a broad type of coverage used to protect your business from liabilities that threaten its financial stability. This insurance extends over other policies to provide additional coverage when certain kinds of underlying policies have reached their limits. It also can kick in to fill in gaps that other policies don’t cover. Thus, it’s an umbrella and an added layer of protection.

 

It’s this “layering” that makes it especially important for business owners: It can give you access to higher limits of protection from risks, at an affordable rate.

 

Even if your business is already covered under a General Liability Insurance policy, you might face a legal judgment or settlement – or a costly repair – that exceeds your coverage limit under that policy. Just as an example, say you carry $1 million in General Liability and are required to pay out $2 million for a judgment resulting from an accident that took place at your company. If you carried a $1 million commercial umbrella policy, it would cover what your General Liability didn’t – saving you from having to pay those funds out of pocket, or selling off assets to cover the difference.

 

What makes an umbrella policy particularly attractive to business owners is its simplicity. For one single premium, you’re expanding your coverage limits over a broad risk territory. It stretches over many of your business activities, protecting your business and your employees while they’re working.

 

Many umbrella policies may kick in to cover damage or losses that aren’t covered by a primary policy like General Liability, acting as first-dollar coverage. In the language of insurers, the policy “drops down” to cover the liability as the primary insurance. This typically occurs with coverages excluded from a standard General Liability policy; some examples of this kind of coverage are non-owned watercraft and aircraft, and advertising liability.

 

Under these scenarios, many umbrella policies will include a deductible or self-insured retention that you would need to meet first for those losses not covered under your other policies, including General Liability.