Commercial Umbrella Insurance Explained + Top Policies 2024

What is commercial umbrella insurance?

Umbrella Insurance is a type of add-on to a main insurance plan that can extend your coverage past the maximum limits if you ever happen to max out on a claim.

Umbrella insurance is unique as it’s a single policy that can extend the limits for multiple types of insurance including:

1. General liability insurance
2. Employer liability insurance (often included in workers’ comp plans)
3. Commercial auto insurance

This type of plan acts as a metaphorical umbrella in the sense that it can extend the limit on any of these plans whenever it is required.

Think of it as an insurance limit watchdog. If you ever reach your claims limit on one of these 3 policies, umbrella Insurance will kick in and pay the excess up to your umbrella policy limit.

Umbrella insurance vs. excess liability insurance

Umbrella insurance is similar to another type of insurance called excess liability insurance. However, excess liability insurance only extends your coverage to one policy. Therefore, umbrella insurance is more comprehensive as it can extend several policies at once.

Who is commercial umbrella insurance right for?

Umbrella insurance is ideal for companies that may face claims above $2 million, or work in an environment where the risk of injury to employees and third parties is higher.

Typically, there is a minimum coverage level you must meet on your main insurance plan to be eligible for umbrella insurance. Therefore, this type of insurance may not be right for all companies – for example, some micro-businesses.

Ask yourself these questions to help determine if you need umbrella coverage:

WORKPLACE & EMPLOYEE RISK

• Does your business operate in a high-risk environment where accidents or injuries are more likely to occur?
• Do you have employees working in roles that pose a higher risk of injury or accidents?
• Do you have employees working in the field or operating company vehicles?

YOUR BUSINESS

• Would a large liability claim exhaust your existing coverage limits or potentially lead to bankruptcy versus your current company assets?
• Are there contractual obligations with clients or partners that may necessitate opting for higher insurance coverage?
• Are there unique aspects of your business that a standard insurance policy may not fully address?
• Is your company undergoing expansion, and does this growth increase your exposure to potential liabilities?
• Are you planning to diversify your business, leading to new areas of risk?

INDUSTRY

• Are umbrella policies common among businesses in your industry?
• Is there a history of legal disputes within your industry that may affect your business too?

If you answered yes to any of these questions, you may want to look into an umbrella insurance plan for your company. You can get a list of plans that match your company’s needs using our online quote tool.

If you are unsure of whether this type of insurance is right for you, a licensed insurance agent can guide you in the right direction.

What does commercial umbrella insurance cover?

Umbrella insurance will cover things that are included in general liability, commercial auto, and certain parts of workers’ compensation policies. However, it does not cover claims related to other types of insurance like commercial property insurance or errors and omissions insurance.

Here is a quick look at what is covered and what is not covered with commercial umbrella insurance:

Here is a real-world example:

Imagine you own a computer repair business, and your customer leaves their expensive computer to be repaired at your office building. Imagine your employee slips on a wet floor, falls and injures their back, and knocks your customer’s computer onto the floor damaging it beyond repair.

In this scenario, facing multiple claims from both your employee and your customer, your umbrella insurance could fill the gap if your limits are maxed out – covering:

• Legal costs:
  For example, if a customer sues your company, you may need to hire multiple attorneys and pay expert witnesses. An umbrella policy covers these costs.
• Medical bills:
  In the United States, inpatient medical care costs an average of nearly $2,900 per day. An umbrella insurance policy extends the limits of your liability policy, ensuring that you don’t go bankrupt paying your employee’s medical bills.
• Property damage:
  In the unlikely scenario the computer costs more than your insurance limit, your umbrella insurance policy would cover the cost of replacing the customer’s property.
• Judgments and legal settlements:
  No matter how good your attorney is, there’s always a chance that you’ll lose a lawsuit filed against your business. Commercial umbrella insurance covers judgments and legal settlements, ensuring that you don’t have to close your business due to a lawsuit.

How much does commercial umbrella insurance cost?

The cost of insurance is always proportional to the amount of risk your company faces.

According to sales data from Insureon, Commercial umbrella insurance costs an average of $75 per month for each $1 million increment based on sales data from Insureon. That said, plans can be even cheaper depending on your company parameters.

Umbrella coverage starts at under $50/month*

*Applies to quotes made through Insureon only. Average monthly premium calculations are estimates and may vary by state, insurance provider, and the nature of your business. Where required or allowed by state law, insurance taxes, service fees, and other surcharges may be included and billed separately from the premium.

Note that your costs may vary significantly based on the following factors:

Understanding business umbrella insurance limits

Umbrella insurance is sold in increments of $1 million limits.

Therefore, when choosing your umbrella policy limits, you will need to consider the limits on your main underlying insurance policies plus however many additional “million dollar limits” you will need versus potential claims amounts.

Here is a short calculation you can use to understand what type of limits you may need:

Potential Claim Amount – Underlying Policy Limit = Minimum Umbrella Insurance Limit

For example, if your general liability policy covers up to $2 million but you could face claims up to $4 million, then you should consider boosting your coverage with a limit of at least $2 million of umbrella insurance for a total coverage of $4 million.

Is commercial umbrella insurance worth it?

Umbrella insurance can be well worth it if you work in a high-risk environment and your business is large enough to require umbrella insurance.

Buying umbrella insurance is usually cheaper than raising the limits of each of your insurance policies. Therefore, when it comes to price, umbrella insurance is worth the cost.

If you don’t think your business would survive a lawsuit or a major loss given your current insurance limits, then it could be a good idea to purchase umbrella coverage. Otherwise, you may want to use the money to raise your existing limits or purchase extra types of insurance coverage.

Umbrella insurance may not be worth it if:

• Your business is very small or has no employees.
• You lack physical operations, such as an e-commerce business.
• You don’t have third parties visiting your place of work
• You don’t have company vehicles
• You don’t work in a high-risk environment

Alternatively, if your liability policy has adequate coverage for these circumstances, you may be better off using the money you would have spent on umbrella insurance to grow your business.

Drawbacks of umbrella insurance

The main drawback of umbrella insurance is that it does not extend all types of insurance limits. For example, umbrella insurance does not cover claims relating to commercial property damage or professional liabilities.

Additionally, umbrella insurance doesn’t work as a standalone policy. Therefore, you must have liability insurance before you can add umbrella insurance to your policy.