In today’s ever-changing business landscape, commercial umbrellas are becoming increasingly important. This is a topic that comes up in almost every meeting with businesses, highlighting its significance and relevance.
Commercial Umbrella – What is it?
A commercial umbrella is an excess liability policy that provides additional coverage on top of general liability, auto liability, and employer’s liability policies. It acts as a safety net, offering extra protection in the event of a claim that surpasses the underlying limits of these policies.
In the past, insurance companies were more generous with commercial umbrella coverage, often providing millions of dollars of extra coverage for minimal cost. However, the landscape has changed significantly in the last decade. Claims that tap into umbrella limits are becoming more common, making it more expensive and challenging to obtain higher limits. Insurance companies are now more cautious and selective about offering high umbrella limits to businesses, depending on their risks.
How Much Should You Have?
This shift in the insurance industry’s narrative has led businesses to question how much umbrella limit they need. While there is no black and white formula to determine the exact amount, there are a few things to consider. First, think about what amount of insurance would help the business owner sleep better at night, aka the importance of peace of mind and ensuring that the coverage is sufficient to handle catastrophic losses.
Another factor to consider is the requirements of specific projects. If working with general contractors who mandate a certain umbrella limit, that can serve as a starting point. However, it is essential to assess whether that limit makes sense for the nature of the work and potentially consider going higher.
Cost is also a crucial consideration. But, while affordability is important, it should not be the sole determinant in deciding your umbrella limit. This coverage is the most significant in any policy, and cutting corners on it can leave a business vulnerable to substantial financial risks.
Lastly, look at the value of the business itself. By considering worst-case scenarios, such as a severe accident resulting in multiple fatalities, businesses can estimate the potential lawsuits they may face. This perspective helps narrow down the discussion to determine what umbrella limit would be appropriate.
Businesses must carefully assess their needs, considering factors such as peace of mind, project requirements, affordability, and the value of their business. By doing so, they can ensure they have adequate coverage to protect against catastrophic losses and potential lawsuits.