Ideally, many businesses take the excellent step of purchasing multiple insurances to get solid protection. However, there are times when some liability coverage limit is reached, in such a situation, the commercial umbrella suffices.
Commercial umbrella insurance, provides coverage for the costs that exceed the limits of liabilities of the underlying, scheduled liability policies. It's commonly referred to as excess liability insurance, however, they are not always the same thing (read more on that below). It protects a business when the limit of other liability coverage is reached. It functions as an extension of many insurance policies and provides higher limits when the underlying coverage will not.
Commercial umbrella extends the limit of liabilities like the employee benefit, workers compensation, general liability, professional liability (E&O), commercial auto, and many more. It's flexible enough to cover any type of expense that a policy initially encompasses such as legal fees, settlement fees, and damage fees.
Each liability policy that is covered under the umbrella must be scheduled on the Umbrella policy (i.e., it is specifically underwritten with the umbrella insurer).
Serious claims can at times require more than a policy can carry. Multiple claims may also arise draining the capacity of a coverage. But with an umbrella coverage, the excess cost from a claim can be dealt with smoothly without resulting in a huge loss of financial power for a business. Businesses are admonished to purchase the plan regardless of their size and worth. It gives added confidence, convenience, and most importantly protects a business from crippling claims.
A commercial umbrella policy covers the expenses and limits that are listed on the primary, scheduled coverage. This means every acceptable expense under a coverage for which an umbrella insurance provides an extension for, is included in the policy. It also means that anything excluded will not be afforded by the umbrella. For example, all acceptable expenses under employee benefit liability are also covered by the umbrella policy if a business uses it as an extension policy. This is also applicable for commercial auto liability, property liability, and more.
Common expenses typically covered by an umbrella or excess policy are the following:
- Lawyer fees
- Medical bills
- Damage to other parties property
Without a commercial umbrella policy, if your primary policy is exhausted, you would have to pay out of pocket for any claims in excess.
Like all insurance, commercial umbrella coverage doesn't include illegal activities - Illegal and criminal acts are exempted from the policy. Additionally, any exclusions from the original policy is not covered by the extended coverage. You should always review your policies for exclusions before binding coverage.
A commercial umbrella also doesn't cover polices that are not scheduled. People often assume that an umbrella covers all of their liabilities. The fact of the matter, if a policy is not underwritten on your umbrella (ie, listed on the insurance policy), then coverage may not be afforded.
Last, an umbrella only covers liability - not physical damage. If your home, auto, office, business property is damaged, an umbrella will not provide payment. It's important your property insurance is valued with the most accurate replacement value.
There's a big misconception around the relationship between an Umbrella policy and an Excess policy. They are often used interchangeably, however, they are not the same (though very similar).
- Excess Liability gives you additional overage for one, existing insurance policy, such as General Liability or Professional Liability. When the primary limits are exhausted, the Excess policy will kick in and provide coverage (in excess) up to the limits of the policy.
- A Commercial Umbrella gives you additional coverage for several liability policy, like General Liability, Auto Liability, and Workers Compensation. When one or multiple policies are exhausted, your Umbrella will step in and provide coverage.
Businesses of any size run the risk of exceeding policy limits should take advantage of the commercial umbrella. Before there are indications that an existing liability or liabilities may be exceeded, commercial umbrella coverage is highly recommended. Companies growing at a fast rate or in new industries should be very mindful of the commercial umbrella.
A general challenge for many companies is knowing when coverage is enough. The reality is that it's almost impossible to discern when coverage needs an extension. Of course, not all businesses are high-risk. Some industries are low-risk and may almost not need a commercial umbrella. However, it's better safe than sorry. Some expensive claims may occur out of the blue but with a commercial umbrella, a business is fully protected.
As for high-risk businesses, a commercial umbrella coverage purchase is a no-brainer. It gives solid protection against potentially massive claims and losses. Businesses in the law and construction industry are examples of high-risk businesses that require protection against huge legal rulings that may drain an initial insurance policy. When this happens, the commercial umbrella policy takes care of the cost of additional claims.
Further examples of vulnerable businesses with a need for umbrella coverage are auto companies and businesses on rented property. Auto legal claims are often expensive and the same is true for businesses on a rented property. The takeaway point here is that the higher the risk, the greater the need for a commercial umbrella.
Similar to any type of coverage, many factors determine the cost of a commercial umbrella policy. Small businesses may pay about $500 to $1500 per year for umbrella coverage. For bigger companies, the cost is higher especially when the industry is high-risk and has previous claims.
Some common factors that may affect the annual price are:
- Industry: As mentioned earlier, risks vary depending on the industry of a business. Insurers pay attention to risk and charge accordingly. The demand for coverage in high-risk industries is significantly high because businesses are aware of the risk involved in their line of work. The combination of demand and the risk involved determines the cost of a commercial umbrella.
- Employee Size: The more the employees, the higher the occurrence of claims. Employee size plays a role in the cost of commercial umbrella insurance. A company with hundreds of employees is likely to exceed the limit of existing coverage. On the other hand, a business with few workers may not need such coverage except in rare circumstances; the cost for a bigger company will be higher compared to a small business.
- Revenue: Your revenue affects insurance price because the bigger the revenue the larger the pay for legal rulings. Companies with big revenues pay more for liability insurance. To extend the coverage limit, a big business will have to pay a high amount while a small business will pay less.
- History of Claims: The history of claims is among the first few things insurers examine to determine how much a premium will cost. A company with numerous claims over the years pays a high premium because there's a strong chance of having more claims. Sometimes a business may be ineligible for a premium due to its history of claims. And even in situations whereby a company hides past claims, an insurance company on discovering this may not release a payout. Insurers require transparency to know what type of coverage is suitable for a business based on record.
- The Coverage Limit: The coverage limit of existing policies influences the limit of a commercial umbrella policy. Commercial umbrella insurance typically pays up to a million dollars per occurrence limit. However, the payout of each exceeded limit can be increased and this drives up the cost of commercial coverage.
Overall, commercial umbrella insurance is quite affordable compared to increasing the limit for each coverage. It also saves a business from paying the extra required amount when the limit of coverage is exceeded. It's imperative to keep in mind that some claims may even require an amount that may cripple a business. So, every business does well to acquire commercial umbrella insurance for optimum protection
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