Many people in the insurance industry will agree that umbrellas are one of the most misunderstood lines of insurance coverage in existence. Of course, it’s easy to understand why when you look up the definition of “umbrella” and get explanations that include:
- “Something which covers or embraces a broad range of elements or factors” 1
- “Something which provides protection” 1
- “A thing that includes or contains many different elements or parts” 2
I’ve had clients and prospects over the years who thought that umbrellas provide some sort of blanket property protection over their business property, equipment, and cars. I’ve had others think it provided some sort of personal liability protection for individuals who are business owners and may get sued – either personally or professionally – for pretty much anything.
With this in mind, what in the world does a commercial umbrella cover?
Short version (but perhaps still slightly confusing version): Commercial umbrella policies are excess liability insurance policies that provide an additional layer of liability protection in the event a large claim exhausts the limits of insurance on an underlying policy.
Longer version (and hopefully clearer version): As a business owner, you most likely have several forms of liability coverage. You probably have general liability insurance, which protects your business against claims alleging bodily injury, property damage, personal and advertising injury, and product liability. You might also have auto liability insurance that covers you and/or your drivers while they are using vehicles for your business. In addition, you may have other liability coverages, such as professional liability, which addresses professional exposures that aren’t covered by general liability insurance, or employer’s liability, which covers work-related injuries that aren’t covered by Workers’ Compensation insurance.
Let’s say you have a large claim, such as an auto accident that results in multiple injuries or even a death. If you have an auto insurance liability limit of $1,000,000 but the total damages amount to $1,500,000, what happens? Answer: your business is responsible for the $500,000 difference once the insurance runs out.
This is where a commercial umbrella policy comes into play. For a relatively small premium, you can purchase an umbrella policy that will cover the damages that are in excess of any underlying policy’s limit of insurance (By underlying, I mean any policy that is specifically listed on the umbrella policy for which the umbrella policy applies. If the underlying policy isn’t listed on the umbrella policy declarations, then the umbrella policy will not apply toward it).
Umbrella policies have limits starting at $1,000,000 – and increase in million-dollar increments from there – so you may want to consider a $2,000,000, $5,000,000, or even higher umbrella depending on the liability exposures your business faces.
Talk to your local independent insurance agent to learn more, as the umbrella you have in your golf bag shouldn’t be the only one that protects you when you’re caught off guard!
The information above is of a general nature and your policy and coverages provided may differ from the examples provided. Please read your policy in its entirety to determine your actual coverage available.
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