Commercial umbrella insurance provides businesses with added coverage when claims exceed the limits of their primary insurance policies, such as general liability. Most umbrella policies provide an extra $1 million of coverage. The cost of commercial umbrella insurance will vary depending upon several factors, but most small businesses get coverage for $500 to $1,500 per year.
Commercial Umbrella Insurance Cost
Most small business owners can expect to pay between $500 and $1,500 per year for commercial umbrella coverage. However, depending on the size of the business and the type or industry of the business, commercial umbrella insurance can be $2,000 or more per year. The most common limit is $1 million per occurrence and $2 million aggregate.
Business Umbrella Insurance Average Cost by Industry
|Janitors and Maids|
|Architects and Engineers|
|Contractors & Construction|
*Data from Insureon
All of the above industry averages represent the cost of commercial umbrella policies with an aggregate limit of $2 million and a per-occurrence limit of $1 million. This means that the policy will pay up to $2 million for all claims made per term, which is usually a one-year period, and not more than $1 million per claim.
How Industry Affects Cost of Umbrella Insurance for Business
One of the biggest factors that affects the cost of commercial umbrella insurance is your industry. For example, construction contractors and business consultants pay some of the highest premiums. This is because their work occurs on somebody else’s property, so there is a heightened risk of third-party liability claims, such as bodily injury or property damage.
While business industry plays a key role in determining the annual premium for commercial umbrella insurance, the associated risk of the business also drives the cost. For example, a retailer with heavy foot traffic will cost more to insure than a retailer with light foot traffic.
Commercial Umbrella Insurance Providers
The purpose of buying commercial umbrella insurance is to extend the limits of coverage on existing liability policies, such as commercial general liability. However, you are not required to use the same insurance company for umbrella coverage as you do for your underlying policy types. For lower pricing potential, shop for business umbrella insurance first with your existing provider, but also get quotes from two or three other providers.
Here are five options for buying umbrella insurance for business:
Getting the right commercial umbrella insurance policy can be relatively easy if you work with a reputable firm that knows your industry. During your search for umbrella coverage, be sure to work with an insurance company that has already worked with businesses like yours. A good place to begin your search is with the experts at The Hartford, who have a long history of serving many industry types.
Buying commercial umbrella insurance through a large provider like Travelers can be a wise choice, because a stronger capital structure offers greater financial security. This provides assurance that the higher claims associated with umbrella coverage can be supported. Travelers also has tailored programs for small business owners.
Working with an online-based broker with access to multiple top-rated insurance companies like CoverWallet can be a good idea. Spending less on overhead and advertising allows insurers like CoverWallet to pass along their savings to their customers. They can help you get connected with multiple insurance companies, with almost instant quotes.
Insureon is a leader in online-based insurance for small business owners. Insureon’s commercial umbrella packages are tailored to fit the unique needs of businesses in the various industries they cover. To do this, Insureon does a good job of studying their clients’ needs and using their own statistical database to fine-tune products for their new clients.
5. Your Existing Insurer
Buying multiple policies from the same insurance company can reduce costs because many insurers offer discounts when multiple policies are bought. You may also consolidate bill pay options when insurance expenses are going out to one provider. Although you can buy commercial umbrella coverage from an insurance company that is different from the one where you hold your primary insurance policies, your existing insurer can be a good place to begin.
Tips on Applying for Umbrella Insurance for Business
Although commercial umbrella insurance will serve the same purpose, no matter where you get the policy, each business will have unique needs for extending the limits of their underlying policies. Therefore, it’s important to know how to shop for the right coverage and to know what information to have ready before you begin.
Here are four tips to know when you’re applying for commercial umbrella insurance:
1. Gather the Appropriate Information Before You Apply
Gathering the right information will help the insurance agent, broker or underwriter determine if umbrella insurance is necessary. Also, being accurate and honest will not only help assess your risk, but may also prevent you from being denied coverage for a false statement on the application.
The primary information you’ll need to gather before shopping for commercial umbrella insurance includes:
- Business legal name, contact information, and tax ID
- Coverage limits and other details of your existing insurance policies
- Details about the nature and risk exposures of your work (to what extent you work with the public, hazardous materials, etc.)
- Revenue estimates for the next 12 months
- Number of employees
- Number of years you’ve personally worked in the industry
- Number of years your business has been in the industry
- Claims history (at least the past three years)
2. Know Your Risk Exposures
Although a good insurance agent or broker can assess your risk exposure, having a good understanding of your risk is important. This is because the primary purpose of purchasing commercial umbrella insurance is to extend coverage limits on your existing insurance policies. Small businesses thinking about umbrella coverage should know what their exposure is in order to make a determination on whether it’s worth the extra premium.
3. Get the Right Coverage Amount
If you have significant risk exposure to third-party liability claims, an umbrella policy can be a smart and cost-effective way to increase coverage limits. Always remember that you should never be underinsured, nor do you want to buy unnecessary coverage.
According to Corey Hallagan, AU, Underwriting Specialist, IAT Insurance Group:
“Make sure primary limits are adequate as required by the umbrella carrier. Inadequate limits will lead to a huge gap in coverage or lack of the umbrella coverage responding. Also know and understand if the policy has a self-insured retention. This is an amount that is to be paid by the insured before the umbrella insurer will respond. This is not like a deductible that is subtracted from the amount to be paid, but must be paid up by the insured.”
4. Use an Agent or Broker Who Knows Your Business
Commercial umbrella insurance is not industry-specific coverage. Therefore, the need for an umbrella policy will differ among industry types. When shopping for umbrella coverage, be sure to look for an agent or broker who understands the risks of your industry. They can also help you get the ideal coverage limits for your particular risk exposures.
How Commercial Umbrella Insurance Works
When you purchase commercial umbrella insurance, the maximum amount you’re covered for is extended, typically by an extra $1 million. The policy won’t pay off anything until the maximum coverage limit is met from your original policy. You’re essentially paying for extra coverage that you anticipate you’ll need based on the risk of the work you perform.
Small business owners who are at risk of going over the limits of their primary lines of insurance may need business umbrella insurance. The most common need that would require umbrella coverage is when you are at significant risk of third-party liability claims. In this case, you would extend the limits of your general liability policy.
According to Jared Staver, Staver Law Group:
“Commercial umbrella insurance is an additional layer of protection that extends liability coverage to protect a business. This insurance is good for high-risk and high-profile businesses. For example, legal fees associated with defending a business are enough to bankrupt anyone who has to pay out of pocket for defense. A flower shop can probably get by without extra insurance, but a go-kart track would be wise to boost their insurance policy as much as possible.”
What Commercial Umbrella Insurance Covers
Commercial umbrella insurance is used to pay claims that exceed coverage limits from other policies. This means that there are potentially several different risk exposures for which commercial umbrella insurance can be used to increase coverage limits. The most common small business insurance policies that commercial umbrella insurance covers include general liability and commercial vehicle insurance.
In other words, business umbrella insurance does not cover a specific risk, but it extends the limits on other policies. For example, if a customer is injured, they sue your business, and the legal fees are $1.5 million. If your general liability limit is $1 million, your extra $1 million in umbrella coverage would easily cover the excess.
Excess Claims on Commercial General Liability Insurance
The most common insurance policy that small business owners may need to add umbrella coverage for is commercial general liability insurance (CGL). A CGL policy covers third-party liability for bodily injury, property damage and personal and advertising injury. The greatest risk of exceeding CGL limits comes from the third-party (general public) exposure.
The third-party risk exposure rises when your customers do business with you on your premises. For example, bodily injury or property damage to your customers can potentially turn into an expensive lawsuit that can take cost of claims above the standard CGL limit of $1 million. To protect against this risk, umbrella insurance is necessary.
According to Jeff Somers, President, Insureon:
“A business’ first line of defense for insurance will be the primary insurance types, such as general liability, employer liability (which is part of workers’ compensation), and commercial vehicle insurance. Although small businesses don’t always need umbrella insurance to extend coverage limits, they sometimes use it as a cost-savings tool. Let’s say you’re on a budget, and you need more coverage than a primary line of liability insurance offers. Adding umbrella insurance can cost less than increasing the limits on your other policies. For example, adding an umbrella policy can be less expensive than increasing the limit on the general liability coverage.”
Excess Claims on Workers Compensation
Workers’ compensation can potentially require extended coverage from commercial umbrella insurance. The workers’ compensation policy will cover most work injury expenses. However, an umbrella insurance policy can be used if an employee sues your business for negligence and your policy does not have an exclusive remedy rule precluding your employee from suing you.
Excess Claims on Hired and Non-Owned Auto Liability Insurance
Hired and non-owned auto liability insurance covers damage caused by the cars your business uses but doesn’t own. This coverage would include vehicles you lease or rent and for your employees’ cars when they run errands for the business. A commercial umbrella policy would extend the liability coverage limit on this type of insurance.
What Commercial Umbrella Insurance Does Not Cover
It’s easy to make the mistake of assuming commercial umbrella insurance covers anything and everything missed by other insurance policies. Commercial umbrella insurance won’t cover claims if you don’t have the appropriate underlying policy in place. For example, if you don’t have a commercial general liability (CGL) policy, your umbrella insurance won’t cover CGL claims.
For a specific example, let’s say a customer trips and falls at your place of business and they incur a serious bodily injury that leads to medical costs and an expensive lawsuit. The total claims and settlement charges are $1.2 million. If the limit on your general liability insurance is $1 million, an umbrella policy could cover the extra $200,000. However, if you have no general liability insurance, your umbrella insurance will cover zero claim costs.
Commercial umbrella insurance won’t cover certain policy types, claims already covered by underlying policies, or claims that you don’t already have primary coverage for:
- Commercial Property Insurance: Your umbrella coverage won’t apply to property insurance claims. If you have office space, equipment, or inventory, you have a need for commercial property insurance, but commercial umbrella insurance won’t extend your coverage.
- Errors and Omissions (E&O) / Professional Liability Insurance: This covers professional mistakes or things that you overlook in the course of doing business. Clients can sue you for negligence or failure to deliver a contractual obligation. Umbrella insurance coverage does not apply to E&O insurance.
- Claims Already Covered by Underlying Policies: If your underlying policy covers the cost of a claim, umbrella insurance won’t cover it.
- Claims That You Don’t Have Primary Coverage For: Umbrella insurance can only extend coverage on existing policies. If you have a liability claim but don’t have liability insurance, your umbrella insurance will not cover it.
Who Needs Commercial Umbrella Insurance
A commercial umbrella insurance policy is potentially needed by businesses that are at risk of exceeding their existing liability policies, such as commercial general liability. Small business owners who work directly with the public on their own commercial property or on a third party’s property should assess their need for umbrella coverage.
Here are a few examples of when commercial umbrella insurance is needed:
- Your Commercial Property Is Open to the Public: Working directly with people, especially if they are on your premises, creates a significant risk exposure that the standard limits on commercial general liability may not be sufficient to cover. For example, if you frequently have customers visiting your establishment, and your business uses heavy machinery, risk of serious injury and a subsequent lawsuit exists.
- You Do Business on Your Clients’ Property: Some businesses, such as construction contractors, do most of their work on other people’s property, where there is an increased risk of third-party bodily injury or property damage.
- Your Employees Use Their Own Cars for Your Business: Many small business owners rely on their own vehicles, or their employees’ cars, for work purposes. If an employee gets into an accident using his or her own car, you could be liable for their damages. A serious accident could become a greater expense than your commercial vehicle insurance limits can cover.
- Your Clients Require High Coverage Requirements: If your commercial general liability coverage limit is $1 million but your client requires $2 million of liability coverage to get the job, a $1 million umbrella policy would enable you to meet the requirement.
The biggest factors that drive the need for commercial umbrella insurance are industry type and exposure to the public. For example, construction contractors work mostly on somebody else’s property and they often use dangerous machinery. So there is a heightened risk of third-party liability claims, such as bodily injury or property damage, and more of a need for umbrella coverage.
While every small business owner needs insurance, not every owner needs commercial umbrella insurance. In some cases, buying umbrella insurance is cheaper than increasing the limits on existing policies. If you need help assessing your risk exposures or determining your need for umbrella insurance, speak with an agent or broker.