When Does a Business Need Umbrella Liability Insurance?
A lot of business owners think their general liability insurance policy is sufficient to cover their business for large claims. While having primary liability coverage is critical, this type of coverage generally has limits that can be reached much more quickly than expected. The use of Umbrella Liability Insurance fills this void in coverage, providing additional insurance protection once the base policy limits are met, allowing businesses to avoid significant financial impact.
Understanding the meaning of Umbrella Liability Insurance
Umbrella Liability Insurance provides an additional layer of liability coverage on top of your Commercial General Liability, Commercial Auto and Employers Liability Insurance policy limits once the limits of these policies have been met. Umbrella insurance will then provide coverage for these claims in excess of your policy’s limit. Examples of the additional expenses paid by the umbrella insurance may include:
- Legal Fees
- Settlements
- Judgments
- Damages in excess
With the increasing numbers of businesses facing ever-increasing legal expenses from the increased number of claims and the higher amounts awarded by courts, it is no longer appropriate to associate Umbrella Liability Insurance solely with larger corporations. More and more small and medium sized businesses are likely facing the types of high-severity claims being made against them in ways that will exceed the limits of their base policies.
Higher Risk for Your Business
If your business interacts with customers, vendors, or the public on a daily basis, you should consider having an umbrella liability insurance policy. Some examples of businesses that have increased liability exposure due to daily operations include retail stores, restaurants, daycare providers, contractors, property managers, manufacturers, and trucking companies. A single injury, accident, or lawsuit could exceed $1 million or $2 million in liability coverage.
In addition, businesses that operate vehicles are at a higher risk of this type of exposure. In a situation where there is a serious automobile accident and people are injured or killed, the claims made will likely exceed basic commercial auto insurance limits. Umbrella liability insurance will give the business an additional layer of financial protection in such extreme circumstances.
A third indicator of needing umbrella insurance is due to contractual requirements placed on the business by property owners, lenders, municipalities, and corporate clients. In many cases, these parties require businesses to carry higher levels of insurance coverage, typically $5 million or more. If your business meets these coverage limits with an umbrella policy, you can do so in the most economical way possible, as an umbrella will typically add little or no additional cost to your primary insurance policy.
Business Expansion and Exposure
Every time a company expands, it increases its exposure to risk. The increase in revenue, number of employees, range of services, physical presence, and types of contracts will each increase the chances that a claim might happen and/or that it may be a significant liability.
Regardless of a company’s growth, too many companies forget to increase the limits of the insurance they have in place at the same time they are growing.
Umbrella Liability is the basic form of coverage that protects companies from potential losses outside of the limits of their primary insurance policies.
Companies and Sectors Where Umbrella Liability is Needed
All sectors will likely see some benefit from Umbrella Liability Insurance. A high risk of injury and damage to property is the norm for the construction and contracting industry. The use of vulnerable populations in daycares and learning centers leads to more severe claims against businesses. The Trucking and Transportation Industry operates in an extremely high risk area leading to potential catastrophic losses. Hospitality, Manufacturing and Property Management Industries also will often hold Umbrella Liability.
The Cost of Umbrella Insurance vs. Protection From Liability Lawsuits
Umbrella liability insurance is one of the most cost-effective insurance products on the market today. When compared to simply increasing the limit of your primary liability policy, umbrella liability insurance usually provides significantly greater amounts of coverage at a lower premium than increasing your primary limit. Thus, most businesses consider umbrella liability insurance to be one of their best investments to protect their balance sheets and future financial viability.
If you have a claim that exceeds your primary liability limits, then the excess amount is your responsibility. You would either have to pay the excess amount out of your own pocket, use up your reserve funds to pay for the excess amount, sell off some of your company assets, or file for bankruptcy.
When Do You Know If You Need Umbrella Liability Insurance?
If your business cannot afford to pay a multi-million dollar liability lawsuit, then you should seriously consider purchasing umbrella liability insurance. A professional review of your current insurance limits and an assessment of your business’ overall risk will assist you in determining if your company’s current liability limits are adequate or if you require additional protection.
At A-Kan Insurance, we work with you to evaluate your business’ risks, review your contracts, and structure a layered liability insurance program to help protect against both common and uncommon occurrences. It is important to understand that purchasing umbrella liability insurance does not mean that you expect a claim, but rather that you have prepared for the worst possible outcome.
