Sometimes, we all need an extra layer of protection to be secure or comfortable.

Running a business involves risks; occasionally, standard insurance policies may not provide adequate coverage. That’s when commercial umbrella insurance can help.

The name may be confusing, but commercial umbrella insurance is a comprehensive policy that protects your existing liability coverage limits. It acts as an additional layer of security when liability claims go beyond your standard policy limits.

Think of commercial umbrella insurance as an additional safety net for your business. It provides coverage above and beyond the limits in your primary insurance policies, such as general liability, commercial auto, and employers’ liability.

Understanding what commercial umbrella insurance is.

Commercial Umbrella Insurance Coverage Basics

Commercial umbrella insurance is a comprehensive policy that extends protection to your existing liability coverage limits. It acts as an extra layer of security when liability claims go beyond your standard policy limits.

In other words, when the claims against your business exceed the limits of your primary insurance, a commercial umbrella policy steps in to cover the excess amount, helping safeguard your assets, reputation, and financial stability.

How Does Commercial Umbrella Insurance Work?

Suppose one of your employees is involved in a car accident with a company vehicle while making a delivery and is found to be at fault for the collision. Unfortunately, the cost of the other driver’s medical expenses and damages to their vehicle exceeds your existing commercial auto policy’s coverage limit. 

Once your primary policy limit is exhausted, and if you have commercial umbrella insurance added to your policy, it will kick in and cover the additional amount. But if you don’t have it, you’ll be out of pocket to pay the balance (which could run into thousands of dollars!).

Although flexible, a commercial umbrella policy only applies to extending the coverage limits for third-party bodily injury or property damage claims. It does not apply to other coverages, such as professional liability, commercial property, or cyber liability insurance.

Also, be advised that you must have commercial general liability or commercial auto insurance to add commercial umbrella coverage to your policy.

What Does Commercial Umbrella Insurance Cost?

Adding commercial umbrella insurance coverage to your policy is usually inexpensive. However, what an insurance company will charge you to include it in your policy depends on a few factors, including:

  • What the existing insurance policy is and its coverage limit
  • What type of business you have, and the industry you’re in
  • The location of your business
  • How many employees you have

Some industries or professions face more significant risks than others, and that will influence the price. Therefore, when determining the amount of commercial umbrella coverage your business needs, consider your industry, risk exposure, and the value of your assets. 

Follow these four steps to determine an appropriate coverage amount:

1. Assess Your Risks

Evaluate your industry’s potential risks and liabilities. Consider the type of business you operate, the potential for accidents or lawsuits, and the financial impact of possible claims.

2. Review Existing Policies

Understand the limits of your primary insurance policies and identify any gaps in coverage. A Zensurance broker can help you do that.

3. Evaluate Assets

Assess the total value of your business assets, including property, equipment and inventory. That includes tangible assets like buildings and machinery and intangible assets such as intellectual property or brand reputation.

4. Consider Worst-Case Scenarios

Imagine the worst possible scenarios that could occur in your business. Think about the potential costs associated with severe accidents, lawsuits, or other incidents. They will give you a better understanding of the level of coverage you may require.

Who Needs Commercial Umbrella Insurance and Why?

A commercial umbrella policy is worthwhile for a broad range of businesses. While every business is unique, there are certain industries and scenarios where commercial umbrella insurance is particularly vital. For example, companies that deal with higher levels of risk, have considerable assets or face potential lawsuits may benefit from this additional coverage. Here are some examples:

  • Construction: Construction companies often face high-risk situations due to the nature of their work. Accidents resulting in severe injuries or property damage can lead to substantial liability claims, making umbrella insurance crucial to protect against potential financial devastation.
  • Hospitality: Hotels, restaurants, and event venues handle large numbers of customers daily. With a higher risk of accidents, injuries, or foodborne illnesses, having a commercial umbrella policy ensures you’re prepared for unexpected events and their associated costs.
  • Manufacturing: Manufacturers dealing with heavy machinery, potentially hazardous materials, or product recalls can face substantial liability claims. A commercial umbrella policy provides extra protection in case an accident or product defect leads to significant damages or legal expenses.
  • Professional Services: Businesses offering professional services, such as architects, consultants, or accountants, can benefit from umbrella insurance. It helps mitigate risks associated with professional errors, negligence claims, or lawsuits that exceed the limits of their professional liability coverage.

To understand the importance of commercial umbrella insurance, consider these hypothetical scenarios:

  • A Third-Party Bodily Injury Lawsuit: A customer slips and falls in your retail store, suffering severe injuries. The medical expenses and subsequent lawsuit exceed the limits of your general liability policy. However, a commercial umbrella policy covers excess costs, protecting your business assets and avoiding financial strain.
  • Product Liability: You own a manufacturing company, and one of your products is found to be defective, causing injuries to multiple customers. The resulting product liability claims exceed the limits of your primary product liability coverage. With commercial umbrella insurance, you have an additional layer of protection to cover the excess costs, safeguarding your business from financial ruin.

In general, commercial umbrella insurance is usually recommended for organizations that:

  • Regularly interacts with customers in-person, like at a retail store or restaurant.
  • Have contracts that are equal to their existing policy limits.
  • Have employees who work at or visit customers’ properties, such as contractors or delivery personnel.
  • Provide professional advice and services.
  • Use heavy machinery or equipment, like a wholesaler, construction company, or professional cleaner.

As with any business insurance you need, think about your potential liabilities and risks to understand better what type of coverage you need, how much, and whether you might benefit from adding commercial umbrella insurance to your existing policy. 

Fill out an online application for a free commercial umbrella insurance quote. We can get you the low-cost coverage you need from one of more than 50 insurance providers in our partner network.

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About the Author: Justin Tisdale

Justin Tisdale is a Team Lead, Professional Lines, at Zensurance.