Last updated: November 29th, 2022
Reviewed by
Rebecca Thrift
Licensed Insurance Agent
Table of Contents
For example, if a customer sues you for more than the limits of your liability coverage and wins their lawsuit, an umbrella policy may step in to cover what your policy won’t.
An umbrella policy can pay for legal costs, legal settlements or judgments, medical bills, or property damage. It basically takes care of out-of-pocket costs your company might have to pay once its liability insurance coverage is depleted.
A business umbrella insurance can cover expenses related to bodily injury or property damage caused by your business, which your commercial liability insurance would typically cover. It can also cover legal costs stemming from lawsuits from employees or customers with injuries related to your business.
An umbrella policy covers claims that exceed the limits of your current policies. It also covers claims that go beyond the aggregate total of your current liability policies. For example, while no single claim might exceed your policy limits, you might experience a year in which many small claims add up to max out your existing policies, causing you to turn to your umbrella insurance for help. Umbrella insurance can also cover rented equipment if your general liability policy only covers equipment that your company owns.
Often, the cost of lawsuits will go beyond your general liability insurance or your commercial auto insurance policy limits. When this occurs, umbrella insurance can provide the protection you need so your company stays afloat.
In addition, some businesses, especially in technology fields, require additional insurance. An IT contract, for example, typically must have insurance with high levels to protect clients in case of an unforeseen event. Umbrella insurance can satisfy this requirement at a lower cost than raising the limits of your general liability insurance.
While commercial umbrella insurance is fairly inexpensive, small businesses with tight margins may find that it overextends their budgets. Some business owners, in addition, don’t want to pay for an insurance policy that isn’t required and they are unlikely to use. However, other businesses appreciate the peace of mind that such a policy can bring.
It can also require a fair amount of work to determine how much extra insurance you need in your umbrella policy and prepare the information that any insurance provider is likely to request. Even with umbrella insurance, a catastrophic accident at your place of business may exceed that policy’s limits as well.
Most companies can benefit from business umbrella insurance, though some businesses may need it more than others. If your business is at high risk for litigation, an umbrella insurance policy can protect it from adverse legal verdicts. Businesses that regularly interact directly with clients should have an umbrella policy to cover injuries to customers that exceed the limits of their liability policy. This category includes any business that has a brick-and-mortar location, since injuries can occur on their premises.
In many cases, businesses have clients that require their vendors and contractors to carry an umbrella policy. Most tech-based businesses require umbrella insurance, and the government typically asks all contractors to carry it as well.
In addition, companies that handle hazardous or otherwise dangerous materials should carry umbrella insurance as an extra layer of protection for their employees. Umbrella policies can also be added to commercial vehicle insurance, and it’s a good idea for any company that either owns vehicles or that asks its employees to drive their own vehicles as part of their job duties.
The only businesses that may not need some level of umbrella insurance protection are sole proprietorships that don’t interact directly with clients.
Business umbrella insurance can cost anywhere from about $40 to $100 per month for $1 million in coverage. The rates vary depending on the inherent risks involved in your business. For example, manufacturing and construction companies tend to see higher premiums for business umbrella insurance. Your company must carry a specified amount of commercial general liability or commercial auto insurance to qualify for business umbrella insurance.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
I've worked for Safeco and Liberty Mutual as a sales agent and claims adjuster for the last five years. My claims experience is primarily auto insurance, but I am licensed to sell auto and property insurance (homeowners, condo, renters, long-term renter, etc) currently.
