How does a commercial umbrella policy work?

When you purchase liability insurance to protect your business i.e,  General liability, Employers Liability (Workers Compensation) and Commercial Auto Insurance these are known as underlying policies. An umbrella policy is purchased to increase your protection and limits (purchased in 1 million increments)  stack up on top of the limits you purchased for those underlying policies. Please note that your umbrella will require you to maintain certain levels of liability limits on your underlying coverages in order for the umbrella policy to step in. If you don’t have the minimum required limits the company becomes a co-insurer to make up the difference. This means the company fills the gap between what you actually carried and what the umbrella requirements are.

A commercial umbrella policy exists as a safety net in the event that those limits are exhausted during a claim that results from a covered loss.

It works like this: let’s say you have a $1,000,000 general liability policy for your sign installing business. Your employees installed a sign at a customer’s store a couple days ago and everything was great – except the business owner just called to inform you that the sign fell off the building crushing 3 cars and injuring 6 occupants in those vehicles. No problem right – you have property damage coverage on your GL policy, and you have Completed Operations coverage just for things like this. One problem: the three cars were expensive but that’s not the real problem three of the occupants in the cars each spent three months in intensive care. The total hospital bills and property damage to the cars came to $1,600,000.

Your Completed Operations coverage will pay out the $1,000,000 limit you purchased, but then what? Fortunately, you heard commercial insurance agent loud and clear and you bought an umbrella. Your umbrella policy will engage and cover the remaining $600,000 of the claim. Had you decided not to purchase the commercial umbrella,
Your company would be writing a $600,000 check for this unfortunate mishap that your employees caused in failing to properly secure the sign. Oh, what happens to the sign that was destroyed?  That goes on the company tab to replace since property in your care, custody or control is excluded. 

When it come to liability there is no shortage of scenarios where a commercial umbrella policy will be your the most cost effective policy money can buy – Its a peace of mind.

Self-Insured Retention (SIR)

Your commercial umbrella policy will come with a self-insured retention – a dollar value you choose that represents the level of risk you decide to hold onto, or retain. This limit is usually found next to your limits of coverage in your umbrella insurance policy, and more often than not is either $0, $10,000 or $25,000.

Sounds an awfully lot like a deductible doesn’t it? How does it work?  When there is coverage in the underlying policy and the claim requires the umbrella to step in there is no Self-Insured retention for you to pay.

So when does the SIR apply? There are times where you have a specific exclusion that is in the underlying coverage but the umbrella may have broader coverage and may include coverage for the claim. The umbrella disregards the underlying policy and drops down to your SIR. The item to point out is that the limits are no longer stacked and you will only be able to rely on the umbrella limit only.

What type of claims may you find that are excluded by underlying coverage but still covered by your umbrella policy? A couple examples could be libel, slander, mental injury, and even mental anguish.

As with all insurance, coverages and exclusions will vary from policy to policy, so when it comes to commercial insurance, it is absolutely imperative to sit down with a knowledgeable agent that can explain which policies cover what, and how to close gaps in coverage when they’re found.

How much in liability coverage do you need?

This is the toughest question you can ask yourself. There is a significant number of variables to consider including the amount of assets your business has and the likelihood of the public becoming injured as a result of your business operations. The best thing you can do is sit down with an experienced agent to gain an understanding of your exposures in order to make an educated decision about your insurance limits.

How does a commercial umbrella policy work?

When you purchase liability insurance to protect your business i.e,  General liability, Employers Liability (Workers Compensation) and Commercial Auto Insurance these are known as underlying policies. An umbrella policy is purchased to increase your protection and limits (purchased in 1 million increments)  stack up on top of the limits you purchased for those underlying policies. Please note that your umbrella will require you to maintain certain levels of liability limits on your underlying coverages in order for the umbrella policy to step in. If you don’t have the minimum required limits the company becomes a co-insurer to make up the difference. This means the company fills the gap between what you actually carried and what the umbrella requirements are.

A commercial umbrella policy exists as a safety net in the event that those limits are exhausted during a claim that results from a covered loss.

It works like this: let’s say you have a $1,000,000 general liability policy for your sign installing business. Your employees installed a sign at a customer’s store a couple days ago and everything was great – except the business owner just called to inform you that the sign fell off the building crushing 3 cars and injuring 6 occupants in those vehicles. No problem right – you have property damage coverage on your GL policy, and you have Completed Operations coverage just for things like this. One problem: the three cars were expensive but that’s not the real problem three of the occupants in the cars each spent three months in intensive care. The total hospital bills and property damage to the cars came to $1,600,000.

Your Completed Operations coverage will pay out the $1,000,000 limit you purchased, but then what? Fortunately, you heard commercial insurance agent loud and clear and you bought an umbrella. Your umbrella policy will engage and cover the remaining $600,000 of the claim. Had you decided not to purchase the commercial umbrella,
Your company would be writing a $600,000 check for this unfortunate mishap that your employees caused in failing to properly secure the sign. Oh, what happens to the sign that was destroyed?  That goes on the company tab to replace since property in your care, custody or control is excluded. 

When it come to liability there is no shortage of scenarios where a commercial umbrella policy will be your the most cost effective policy money can buy – Its a peace of mind.

Self-Insured Retention (SIR)

Your commercial umbrella policy will come with a self-insured retention – a dollar value you choose that represents the level of risk you decide to hold onto, or retain. This limit is usually found next to your limits of coverage in your umbrella insurance policy, and more often than not is either $0, $10,000 or $25,000.

Sounds an awfully lot like a deductible doesn’t it? How does it work?  When there is coverage in the underlying policy and the claim requires the umbrella to step in there is no Self-Insured retention for you to pay.

So when does the SIR apply? There are times where you have a specific exclusion that is in the underlying coverage but the umbrella may have broader coverage and may include coverage for the claim. The umbrella disregards the underlying policy and drops down to your SIR. The item to point out is that the limits are no longer stacked and you will only be able to rely on the umbrella limit only.

What type of claims may you find that are excluded by underlying coverage but still covered by your umbrella policy? A couple examples could be libel, slander, mental injury, and even mental anguish.

As with all insurance, coverages and exclusions will vary from policy to policy, so when it comes to commercial insurance, it is absolutely imperative to sit down with a knowledgeable agent that can explain which policies cover what, and how to close gaps in coverage when they’re found.

How much in liability coverage do you need?

This is the toughest question you can ask yourself. There is a significant number of variables to consider including the amount of assets your business has and the likelihood of the public becoming injured as a result of your business operations. The best thing you can do is sit down with an experienced agent to gain an understanding of your exposures in order to make an educated decision about your insurance limits.