Every business faces risks, and one major risk for any business is a lawsuit. Liability insurance helps cover the costs associated with lawsuits, but these policies have limits. Commercial umbrella insurance may be what puts your mind at ease. Learn more about how commercial umbrella insurance works.
What is Commercial Umbrella Insurance?
Commercial umbrella insurance adds additional coverage to your business liability policies. At a minimum, most businesses have commercial general liability insurance either on its own or as part of a business owners policy (BOP). Businesses may have other types of liability coverage as well, like professional liability or business auto insurance.
All liability insurance policies have a limit. If a claim exceeds that limit, your commercial umbrella insurance will start paying after the underlying policy’s limits are exhausted and pay to its policy limits.
Do I Need a Commercial Umbrella Policy?
Whether you need a commercial umbrella policy depends on the risks your business faces and how much the policy costs. The best approach is to contact at least 2 to 3 insurance companies and discuss your business with them. They can provide you with quotes and information on which coverage is best for your business.
Best Umbrella Commercial Insurance
Who has the best umbrella (liability) insurance? Here are Benzinga’s picks.
- Best For:Matching you to the provider that fits your needsget started through Tivly’s website
- Best For:Comprehensive coverage/Business Owners' Policysecurely through The Hartford Business Insurance's website
- Best For:Start-ups, the self-employed and small businessessecurely through CoverWallet Business's website
- Best For:Freelancerssecurely through Thimble Business Insurance's website
- Best For:Small businesses with less than 25 employeessecurely through Next Business Insurance's website
What Does Umbrella Insurance Cover?
Umbrella insurance varies by policy, so it’s important to carefully review potential policies. Some umbrella policies do more than just increase your liability coverage. They may provide additional coverage like reimbursing you for the deductibles in your liability policies.
The primary job of an umbrella insurance policy is to extend your liability limits. Let’s say you have a general liability policy with a $100,000 limit. A client slips and falls while visiting your office, resulting in a severe injury that keeps them from working along with medical bills. The client sues and settles with you for $150,000, which is $50,000 more than your liability limit.
Without an umbrella policy, you’re responsible for the $50,000. With an umbrella policy, your insurance company will pay the $50,000.
Here are some of the types of policies that can be extended with commercial umbrella insurance:
- Commercial general liability: This insurance provides bodily injury, property damage and personal and advertising injury liability insurance.
- Commercial auto insurance: Auto liability insurance is required coverage in every state. This coverage helps to pay for injuries and property damage to other parties if you or an employee is found to be at fault in an accident.
- Professional liability: This coverage helps to pay for legal defense costs, settlements and awards if someone sues you for professional negligence.
- Employment practices liability: This insurance helps to pay for legal defense costs, awards and settlements if a current or former employee sues your business due to wrongful termination, failure to promote, sexual harassment and other employment issues.
What an Umbrella Policy Does Not Cover
An umbrella policy only works with liability policies. It doesn’t cover claims from other types of policies, like commercial property insurance. For example, let’s say you have a $100,000 limit on your commercial property insurance and an umbrella policy. There’s a fire at the business next door, and it causes $150,000 in smoke and fire damage to your business. In this case, you’d be responsible for paying the $50,000 difference because it isn’t covered by your umbrella policy.
If you’re uncertain which policies are compatible with umbrella insurance, discuss your insurance needs with an experienced insurance agent or broker. In general, umbrella insurance isn’t compatible with:
- Business auto coverage that isn’t liability
- Property insurance
- Workers’ compensation insurance
Is Umbrella Insurance a Business Expense?
According to the IRS, you can generally deduct the “ordinary and necessary cost of insurance” as a business expense. If you have any questions about business expenses and what you can deduct, consult your accountant.
How Much Does Commercial Umbrella Insurance Cost?
The best commercial insurance options vary when it comes to cost. One important factor is location. A business owner shopping for commercial insurance in Texas will get different quotes than a California business owner, even if they’re shopping for the same type of coverage.
The type of business you have also influences your policy costs. A construction business faces different risks than an upscale women’s clothing boutique. Costs also vary depending on the number of employees you have, the size of your payroll and your claims history.
Commercial umbrella insurance costs about $40 per month for each $1 million in additional coverage. Your costs could be higher or lower depending on your business.
Is Commercial Umbrella Insurance Right for You?
Given its relatively low cost, getting commercial umbrella insurance is a good move for many businesses. If you frequently see clients at your business, visit your client’s property, or drive for business purposes, you should carry as much liability insurance as possible. Commercial umbrella insurance is an affordable way to increase your liability coverage.
Since commercial umbrella insurance is closely tied to other insurance policies, consider reviewing your business insurance portfolio before buying commercial umbrella insurance. You may need to increase your underlying policies’ coverage limits to buy an umbrella policy. Business insurance needs also change from time to time, so it’s a good practice to review your insurance policies at least once per year.
Frequently Asked Questions
Q: Can I buy umbrella insurance separately?
A: You can technically buy an umbrella insurance policy, but the coverage is limited and only a few companies offer these policies. Umbrella insurance policies are designed to add coverage to underlying liability policies. Without a liability policy, there’s no reason to have an umbrella insurance policy. If you’re on a tight budget, the best move would be to purchase a general liability or BOP and then add umbrella insurance coverage when you have the funds.
Q: Are umbrella policies worth it?
Given the relatively low cost of an umbrella policy, it’s a worthwhile purchase for many businesses. You may need to meet certain policy limits for the underlying coverage before you purchase an umbrella policy. For example, you may need to have $500,000 in commercial general liability coverage before you can buy an umbrella policy. If you don’t need that much liability insurance, it may not be worthwhile to purchase an umbrella policy. Given the high cost of lawsuits, it’s better to err on the side of caution when it comes to liability insurance.
Q: How many umbrella policies can I have?
A: You can technically have more than 1 umbrella policy, but they’re for different purposes. For example, you might have 1 umbrella policy for your business policies and 1 umbrella policy for your personal policies. If you have commercial general liability and business auto insurance, an umbrella policy will enhance your liability coverage for both policies. It works the same way for your personal policies. You only need 1 umbrella policy to enhance your liability coverage for both your homeowners and personal auto insurance policies. So you may have 2 umbrella policies, with each policy extending a different type of coverage.
Benzinga crafted a specific methodology to rank commercial insurance. We prioritized carriers based on coverage options, specialized industries, customer service experience and how quickly and easily you're able to get insured including online tool usage. We also included commercial insurance quote aggregators in lists to make it easy and efficient to compare policy quotes and options. To see a comprehensive breakdown of our methodology, please visit see our Commerical Insurance Methodology page.