As a small or medium business owner, are you prepared to get sued?
Did you know that 36-53% of small businesses are dealing with some form of litigation in any given year and that 90% of all businesses are dealing with litigation at any moment in time?
Statistically, your business has a very high probability of encountering unforeseen legal issues, so you need to be prepared for this likelihood.
Do your insurance policies properly insulate your livelihood from litigation risk? Being uninsured or underinsured is one of the most common risk factors for litigation, so today, we’re going to discuss one of the best ways to protect your business and livelihood.
Let’s say you’re insured with the basic types of commercial business coverage like general liability insurance and worker’s compensation insurance and properly follow local, state and federal laws. Is that enough? Will it cover your costs when a lawsuit rears its ugly head?
It would be handy to have a fail-safe, a backup plan that protects your business and assets, wouldn’t it? That’s where commercial umbrella insurance comes in.
What is Commercial Umbrella Insurance?
Simply put, commercial umbrella insurance provides extra insurance for your business or assets to insulate you from the risk of any insurance coverage gaps. It also gives you additional liability protection above and beyond the limits of your policies.
Small business owners love it because it can be customized to their needs. You can add umbrella liability protection to almost any type of policy: homeowners, farm, commercial, auto, etc. Industries that benefit from this typically are:
- Hotels and Bed & Breakfasts
- Condo Associations
- Rental Properties
- Apartment Houses
- Retail Stores
- Small Contractors
Policies typically start at $1 million and can cover up to $10 million.
Why Do I Need a Commercial Umbrella Insurance Policy?
You might be thinking, “I already have all the necessary types of small business insurance required by law, so why do I need an umbrella insurance policy too?”
Umbrella insurance policies protect you from unforeseen gaps in insurance coverage and unforeseen expenses incurred when filing a claim. They provide more protection against catastrophic losses than your primary policies. Small businesses like construction contractors are more likely to go out of business from an insurance claim than large businesses because they generally deal with fewer assets to insulate them. They can’t take the hit as well.
Imagine that one of your employees gets into an auto accident in a company vehicle, and your business is then faced with covering damages and bodily injuries.
The damages total $300,000, but your auto policy only covers up to $200,000.
Who is going to pay the $100,000 difference?
Without umbrella insurance, you are!
It seems like an unnecessary risk to take, especially when the cost of an umbrella insurance policy doesn’t have to be all that expensive.
How Much Does Commercial Umbrella Insurance Cost?
Cost depends on a variety of factors:
- Claims History
- High-Risk/Low-Risk Businesses
- Credit History
According to How Much, a $1 million umbrella insurance policy for your business can range from $16/month ($200/year) to over $200/month ($2,500/year). Each business has specific needs and risks, so it’s difficult to say what you’ll pay for additional coverage. The best way to find out is to contact an agent near you to get a customized quote based on your unique needs.
What Isn’t Covered by Commercial Umbrella Insurance?
There may be exceptions based on local, state, and federal laws, as well as your insurance provider’s policies, but generally speaking, the following areas aren’t covered under umbrella insurance for your business:
- Criminal/Intentional Action Causing Damage to Someone Else or their Property
- Injuries or Damage to Yourself and/or Your Personal Property
- Injuries or Property Damage that Your Business is Responsible for
- Contract Liabilities
4 Commercial Umbrella Insurance Buying Tips
Getting the best price and the right coverage is critical for your business, so what can you do as a small business owner to ensure you get what you need?
Here are a few tips for doing just that!
#1 – Commercial Umbrella Insurance vs. An Excess Policy
Watch out for insurers who offer umbrella policies that are actually Excess Policies. Commercial umbrella insurance gives you two things: extra limits and broader coverage than the primary policy you’ve purchased.
An excess policy only gives you those extra limits and doesn’t offer the broader coverage that an umbrella policy does
#2 – Self-Insured Retention (SIR)
It’s fairly standard in the insurance industry that small business umbrella insurance policies have a specific amount your business pays before your umbrella policy kicks in. For example, if your umbrella policy includes a $1,000 SIR, you face a lawsuit and settle for $5,000, then you’ll pay $1,000, and your umbrella will pay the $4,000 difference.
Pro Tip: A SIR sounds like a deductible, doesn’t it? However, while A SIR and a deductible are designed to meet the same goals, there are some differences, which you can learn about here.
#3 – Expiration Dates
It’s a best practice that all of your primary and umbrella policies have the same inception and expiration dates, so you avoid coverage gaps when policies are renewed or expired.
#4 – What’s Your Company Valued At?
A rule of thumb for umbrella policies is that if your liability limits are less than the total value of your assets, you probably need to consider an umbrella policy.
Given that 1/3 to 1/2 of businesses are likely to face litigation this year, it’s a good move to consider an umbrella policy for your small business. You can insulate your livelihood from unnecessary risks at a low cost and get the peace of mind of knowing that you’re protected.
Are you ready to speak with one of our experts so we can tailor an umbrella policy to your specific needs? Do you have questions about insurance coverage? Find an agent or contact us today! We’ll be happy to help you out.
Avante Insurance Agency. Ten Common Business Mistakes That Could Land You in Court.
Forbes. You’re Going To Get Sued – Here’s How Not To Get Screwed.
How Much. Commercial Umbrella Insurance Cost.
IRMI. Self-Insured Retentions versus Deductibles.
Nerd Wallet. What Is Umbrella Insurance, and How Does It Work?
SBA Office for Advocacy. Impact of Litigation on Small Business.
The Balance. The Basics of Commercial Umbrella Policies.
*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the products listed here. Please contact your local agent to find out more about how we can help with your insurance needs.