How High Should My Commercial Umbrella Limit Be?

Every business needs some level of liability coverage to protect against lawsuits or third-party claims. General liability policies and commercial auto policies are the first line of defense in a claim situation.

But what happens when a claim exceeds the coverage limits of your general liability or commercial auto policy limit? That’s when your commercial umbrella policy kicks in to provide the excess coverage you need.

Let’s look at how you determine a commercial umbrella policy limit and why having the added protection it can provide is important.

Why Purchase a Commercial Umbrella Insurance Policy?

Commercial umbrella insurance increases business liability protection when the costs of a claim exceed the limits of the primary underlying business liability coverage.

For example, a general commercial liability policy for a company may provide $1 million in coverage for a single claim and $2 million aggregate, or total in a year. If a single claim exceeds that $1 million threshold, it could put your business assets at risk and you may be obligated to pay remaining out-of-pocket expenses for damages beyond the policy limit.

If you purchased supplemental commercial umbrella insurance, it extends your liability coverage and provides an additional layer of protection on top of your general policy. It cannot be purchased as a standalone policy, and it kicks in once the base policy limit is exhausted.

In a time when multi-million dollar lawsuits are becoming more commonplace, having this additional coverage in place simply makes sense, especially since it is relatively affordable.

Things To Consider When Determining An Umbrella Policy Limit

Customer contract requirements.  Some industries and customers commonly require their service providers and vendors to prove they have adequate coverage to handle potential claims. Most contracts you enter into require a specific limit of coverage to be provided. Some agreements might outline higher underlying limits such as $2 million for auto liability, and traditional policies only provide $1 million in limits. The umbrella policy can be used to cover that additional limit requested in the contract.

Your industry has inherent risks. Some industries are prone to more litigation and a higher number of claims, or are inherently more dangerous, such as construction, logging, industrial machinery or manufacturing. Learn to identify risk in your organization and obtain adequate umbrella coverage to help mitigate against a catastrophic claim.

You own a fleet of vehicles. Trucking is considered one of the most dangerous jobs, and claims can be excessive for both injured employees and outside parties who may have been caused harm from an accident. Having semis and dump trucks creates an exposure for larger claims and higher than normal limits should be considered. Your risk advisor can help guide you in the right direction for an umbrella limit depending on the size of your fleet and types of vehicles.

Today’s business climate continues to evolve and so do the risks. Even if you’ve avoided excessive claims in the past, it’s important to assess your risk as it stands today. Unfortunately, it only takes one catastrophic event to put your entire business and livelihood at risk.

Ensure you’re providing adequate coverage to protect your organization’s assets, including your customers and employees. Understand how much you’re willing to self-insure in the event of a large liability claim, but also consider that most umbrella policies get cheaper by the million the more you purchase. Work with a strategic risk advisor who can thoroughly assess your needs and risk tolerance, and can help you determine how much umbrella coverage you need for your business. Reach out today to interview our team and learn how you can leverage a partnership with McClone to secure the future.