Understanding Commercial Umbrella Insurance

January 2021
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Umbrella insurance is a type of liability policy that extends the coverage limits provided by your commercial general liability policy.

Umbrella coverage sounds pretty cut and dry: extra coverage to protect your business. But there is a little bit more to an umbrella policy than that, so let's dig a bit deeper for a better understanding of this commercial liability coverage.

How Does an Umbrella Policy Work?

An umbrella policy is designed to give you extra protection for costs that exceed the limits of certain liability policies. It complements, rather than replaces, existing commercial policies such as general liability and commercial auto.

Let's say you have a general liability policy with a $1M coverage limit. Now imagine that a third-party injury at your place of business results in a lawsuit and $1.5M judgment.

If you have umbrella coverage, it could kick in to cover the remaining $500,000.

If you don't have the extra umbrella coverage, you would be responsible for finding a way to pay the extra $500k out of pocket.

What Does Umbrella Insurance Cover?

Umbrella insurance covers the same types of costs as your commercial general liability policy, such as attorney fees, damages from lawsuits, and third-party property damage or medical bills.

Umbrella policies may fill coverage gaps left by existing commercial general liability or commercial auto policies. Your insurance broker can help you find a commercial policy that will extend and fill gaps left in your current coverage.

What are the Limits of an Umbrella Policy?

Like many other insurance policies, the limits of an umbrella policy can vary to serve the needs of large, medium, and small-sized businesses. You can find commercial umbrella policies with limits starting at $1M up to $50M for large-scale companies in high-risk industries.

Your agent or broker can help you determine the appropriate limit for your business size and industry.

What's Not Covered by an Umbrella Policy?

An umbrella policy is not a catch-all policy. It will only extend the limits of specific commercial liability policies, but not all.

Some umbrella policies are stand-alone policies, subject to their own conditions and exclusions independent of the underlying policy. This means your umbrella coverage may contain differing exclusions than the general liability policy underneath.

Be sure to ask your agent or broker how your umbrella policy's coverage and exclusions differ from the underlying policy.

What Does an Umbrella Policy Cost?

Umbrella premiums vary depending on the limits, coverages you need, and the insurance carrier. Your agent or broker can give you an estimate of how much an umbrella policy is likely to cost based on your individual business needs.

An umbrella policy protects against the risk of costs that extend above and beyond the limits of your existing policies. Umbrella policies are often a more affordable solution than merely raising the limits of the underlying policy itself.

Talk to your agent or broker to determine if an umbrella policy is a smart investment for your business and get an umbrella quote personalized for your needs.

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