How Does It Work?
Your business may have risks that go beyond the limits of your underlying policies. Suppose you have a general liability policy that covers up to $1 million in claims. A customer gets hurt while on your property, and the damages amount to $1.2 million. Ordinarily, you would have to pay the remaining amount above $1 million, or $200,000 -depending on your policy’s limits, you could face substantial liability exposure.
You can protect yourself from catastrophic claims through a product called excess insurance, which simply increases the payout amount on a liability policy you already have. It increases the limits, but it doesn’t change the conditions or perils stipulated in your policy. If something is excluded from the underlying policy, it will also be excluded from the excess coverage. Additionally, excess insurance is attached individually to each of your liability policies – not to all at once.
An umbrella policy, on the other hand, covers all your liability policies. It also can provide coverage that is broader than the underlying policy. An umbrella may pay a claim that wouldn’t ordinarily be covered by the underlying policy. Some examples are extending auto coverage to include foreign countries or broadening liability coverage to include injuries that occur away from a job site.
If an umbrella policy covers a claim excluded by your underlying policy, you’ll need to first pay a self-insured retention (SIR). Sometimes known as the drop-down deductible, the SIR is the amount you must pay before the umbrella policy pays out. If your underlying policy covers a claim, you must first exhaust that policy’s limit before making a claim on your umbrella policy. In some cases, an umbrella policy may have exclusions not contained in your underlying policies.
What is Covered?
Umbrella policies typically cover legal costs you incur if you are sued and any judgments and settlements you must pay. They also pay for damage to another person’s property and medical expenses if someone is injured. Some policies also cover libel, reputational damage, product liability and professional liability.
If you have a commercial auto policy, umbrella insurance also covers your liability from accidents, including when you don’t own the vehicle (provided you have hired auto coverage).
Umbrella insurance has the advantage of extending the limits of several liability policies with one blanket policy. This may be preferable to raising the limits of several individual underlying policies
Umbrella coverage is usually purchased in increments of $1 million. For example, a $10 million policy would provide up to $10 million in liability protection. This is on top of the limits on your underlying policies. Therefore, if your general liability coverage has a $1 million limit, you could double your coverage by purchasing a $1 million umbrella policy. Umbrella coverage is usually less expensive than the underlying policy.
When Do You Need Umbrella Coverage?
Do you frequently have customers on your premises? Is your type of business considering a high risk, or is your work site potentially hazardous? Do your employees work on a customer’s property? Do you own vehicles and make deliveries?
Retail, hospitality, construction, shipping, manufacturing, health care and energy are some industries where employers may need umbrella coverage. Likewise, an umbrella policy may make sense for certain situations, such as if your company owns a boat or airplane. In some cases, a business partner may require that you have umbrella insurance.
Government contractors are often required to carry it.
The cost of umbrella coverage depends on factors such as type of business, location, number of employees and your prior claims experience. Consult with an insurance professional to determine the coverage you need and your best options for limiting your exposure to a lawsuit or costly medical award.
Contact Richland-Knowles to Learn More
Before you purchase umbrella coverage, make sure you have all the liability coverage you need. Work with an agent to identify gaps in coverage. For example, do you need employment practices liability insurance to protect against discrimination, harassment, and other employee lawsuits? Do you need directors’ and officers’ liability insurance to protect your top executives and board members? Do you need professional liability to protect against claims of error or negligence in the performance of your duties?
Umbrella coverage is still one of the best ways of protecting against extraordinary claims that could bankrupt your business. For many firms, it’s an essential risk-management tool. Richland-Knowles Insurance Agency is here for you and can review a potential commercial umbrella policy for you. Contact us today.
