Running a business comes with several risks. Sometimes, it pays to be extra sure that your business is safe from every possible risk. Commercial umbrella insurance offers you that extra edge to ensure that your business continues to grow.
This piece will consider the cost of this insurance policy and how it works to protect your business.
- How much does commercial umbrella insurance cost?
- Factors that affect umbrella insurance costs
- How to find cheap commercial umbrella insurance?
- What does commercial umbrella insurance cover?
- Requirements for commercial umbrella liability insurance
- Who needs commercial umbrella insurance?
- Best commercial umbrella insurance companies
How much does commercial umbrella insurance cost?
The average cost of umbrella insurance for a $1 million policy is around $1,500 per year. Many small businesses, however, pay less than that, with the median premium hovering around $900 per year.
There is a significant price difference between low and high-end umbrella insurance because no two businesses are alike, and each company faces a unique set of risks. Aspects such as the amount of insurance purchased are also taken into account.
Here are some general guidelines for a $1 million coverage limit:
High-end umbrella insurance cost
A high-end umbrella insurance policy costs $2,500 or more per year. Those who fall into this category, such as doctors, lawyers, and the construction industry, face a significant professional liability risk.
Low-end umbrella insurance cost
Umbrella insurance on the low end can cost as little as $200 to $400 per year. Individuals who provide housekeeping services and only insure themselves fall into this category because they have a low limit of liability.
Keep in mind that these are just the averages. Your rate may be lower or higher depending on several factors such as the nature of your business or your business’s claim history. Be sure to shop around with a few companies or work with a top broker like CoverWallet or Simply Business to compare several quotes to find the cheapest one for your business.
Factors that affect umbrella insurance costs
To give you a better idea of what you can expect to pay, let’s break down some of the key factors that will influence your commercial umbrella insurance cost and premium:
Limits of coverage
Umbrella insurance’s main purpose is to increase your coverage limits. Therefore, your policy limit is one of the most important factors determining the policy’s protection adequacy.
In most cases, umbrella policy limits will begin at $1 million per occurrence, with a total limit of $2 million.
This means that the basic policy will pay $1 million for any single claim and double that amount throughout the policy’s life. You can, of course, increase these limits, but you’ll have to pay a higher premium.
Sub-limits are common in excess liability policies. A sub-limit for damage to rented properties, for example, is usually included in a general liability policy.
This allows insurers to provide more comprehensive coverage while excluding risks they would rather avoid.
Because of the complexities surrounding umbrella limits, consider consulting with an experienced insurance broker or agent so you can critically review the terms of the policy to understand what’s covered and what isn’t and to avoid being left without proper coverage.
History of claims
Insurers will look at your claims history to see if you have a history of filing claims. If your business has a long history of costly lawsuits, you’ll have to pay more for insurance.
If your business has had too many claims in the past, you may not obtain excess liability coverage from some insurance carriers.
Keep in mind that insurance companies will ask you about previous claims and lawsuits when getting a quote. If they discover that you were not truthful during the process and omitted or obfuscated this information, you risk losing your future claims payouts.
Although the amount of coverage you’ll receive is the most important factor in determining the cost of your policy, your industry will also play a role.
Insurers consider certain industries to be riskier than others, so that they will charge higher premiums. Because these businesses are aware of the liability risks associated with their professions, demand for umbrella coverage in high-risk industries is typically higher.
Keep in mind that insurers will focus on liability exposures rather than the entire risk profile of the industry. This means that businesses that provide professional services or have the potential to harm third parties will be identified as higher risk.
Businesses in this category include law firms, hospitals, accounting firms and other professionals.
The relationship between revenue and premiums is straightforward. The more money a company makes, the more liability insurance it will have to pay.
Companies with high revenue are more likely to be sued, and their legal teams are better. Furthermore, if they lose the lawsuit or settle out of court, they will be forced to pay much more than smaller businesses.
Size of the company
While not as important as the risk profile of your industry, size will have a significant impact on your premiums.
The size of your business is critical because the more employees you have, the greater your risk of liability claims or injuries.
The cost of insurance varies depending on where you do business. Companies in densely populated metropolitan areas will typically pay higher premiums than those in less densely populated areas.
Your premium will also be higher if your company has property in a high-risk area, such as one known for natural disasters or crime.
Auto insurance coverage
When you add umbrella coverage to your auto insurance, the factors that influence your umbrella coverage premium will be the same as those that influence the cost of your original policy.
The value of your vehicle, the size of your fleet, and the amount of mileage your company travels can all influence the likelihood of an extended liability claim.
How to find cheap commercial umbrella insurance?
Commercial umbrella insurance is an extra cost on its own. However, you can employ a few tactics to cut costs and save some dollars.
Pay your annual premium in advance
You can pay your commercial umbrella premium in monthly or annual instalments. While paying monthly premiums may be appealing, consider paying the full amount instead. Many insurers provide discounts to companies that pay this way.
Manage the risks that your company faces
If your company has never filed a claim, your insurance rates will likely be lower. Creating a comprehensive risk management plan is an effective way to reduce claims. For instance, you could:
- Develop detailed procedures for employees
- Establish rules for posting to your company’s social media accounts.
- Purchase fire alarm and security systems.
- Reduce the number of hazards on your company’s premises.
- To avoid claims on your auto policy, limit who is allowed to drive business vehicles.
Shop around to compare several quotes
Different companies assess risks differently. You will get different quotes from different companies. Be sure to shop around with a few companies or work with a top broker like CoverWallet or Simply Business to compare several quotes to find the cheapest one for your company. Don’t settle on the first quote you receive, you’ll leave money on the table.
What is commercial umbrella insurance?
Commercial umbrella insurance adds another layer of liability protection to your business. Commercial umbrella insurance kicks in when a claim exceeds the liability limit of an underlying insurance policy.
What does commercial umbrella insurance cover?
Commercial umbrella insurance covers liability claims that exceed the limits of an underlying insurance policy, such as a general liability policy or a commercial auto insurance policy.
The policy covers legal fees, medical bills, property damage to others, and court judgments and settlements. Insurance companies typically write commercial umbrella policies with aggregate limits ranging from $1 million to $15 million.
To fully understand what the policy covers, consider the following example:
Your commercial umbrella insurance would cover the $500,000 shortfall.
Let’s say one of your company drivers hits another car with the company van. Sadly, your company is sued for $2 million since your driver was at fault.
But then, the damages you are expected to pay exceed the liability limit on your commercial auto insurance policy, which is $1.5 million. If you don’t have a commercial umbrella policy, you’ll have to pay the extra $500,000 out of your pocket, putting your company at risk. Another option is to use your own money, jeopardising your financial stability.
However, if you have a commercial umbrella policy, you won’t need to use either option. A commercial umbrella policy can cover costs exceeding the primary liability policy’s limit.
Requirements for commercial umbrella liability insurance
Commercial umbrella liability insurance can supplement the coverage provided by the following insurance policies:
- General liability insurance
- Liability insurance for the employer (often included in workers’ compensation)
- Hired and non-owned auto insurance, or commercial auto insurance (HNOA)
Insurers will require you to have a certain amount of coverage for the underlying policy before you can purchase umbrella liability insurance for any of these policies. Usually, most companies require that you carry a policy limit of at least $2 million.
For example, suppose you need a $5 million per occurrence general liability policy. In that case, the insurer will offer you a $3 million umbrella policy, provided you already have a $2 million general liability policy running.
Who needs commercial umbrella insurance?
Some of the policies you extend their liabilities with umbrella coverage may be required by law. However, there are no legal requirements for umbrella coverage. It doesn’t mean the coverage isn’t necessary just because you’re not legally required to keep it.
Everyone with a business needs an umbrella policy, though some businesses require it more than others. Basically, the higher your liability or the likelihood of being sued, the more umbrella coverage you’ll need. Employees who work in jobs with a high risk of being seriously injured are also at risk.
Previously, commercial umbrella insurance was only available to large corporations. Because lawsuit costs frequently escalate, more small businesses are investing in commercial umbrella insurance these days.
Doctors, lawyers, and those in the construction industry are the most in need of umbrella coverage. However, the policy will work well for your company if the following applies to you:
- You interact with the public frequently. The higher a business’s foot traffic, the higher its liability risks.
- Your company owns a large number of vehicles. A company with a fleet of vehicles may need coverage to cover the costs of minor vehicle accidents over time.
- Your job is dangerous. The higher the risk of employee injury, the more dangerous the job – especially in industries like construction.
- If you want to sign a big client who requires more liability insurance, you might want to think about it.
Best commercial umbrella insurance companies
Many companies offer commercial umbrella insurance for small businesses. It can be overwhelming trying to find the best one for your business. We have researched and studied 20+ companies and here are our recommendations of the best commercial umbrella insurance companies for your consideration:
- CoverWallet: Best for comparing several quotes online
- Simply Business: Best for finding low-cost coverage
- Nationwide: Best Overall
- Chubb: Best for mid-to-large sized businesses
- NEXT: Best for an excellent digital experience and affordable rates
What isn’t covered by a commercial umbrella policy?
Umbrella policies, like most types of insurance, do not cover anything done on purpose by the customer or any claim arising from a crime committed by the client.
Damages to your building, personal property, or anything else owned by your company are not covered by an umbrella policy. Also, standard policies do not cover employee theft.
With a few exceptions, an umbrella policy will not cover anything your underlying insurance policies do not cover. Individual commercial umbrella policies, states, and insurance companies are the only ones who have them.
Keep in mind that each umbrella policy is different in terms of coverage, so before you buy one, talk to your agent or insurance company about the specifics of what your umbrella policy will cover.