Umbrella Liability Insurance Quote For Small Business

Small business owners purchase Umbrella Liability insurance to protect against losing everything in a lawsuit resulting from a catastrophic injury. An Umbrella policy can provide inexpensive peace of mind and should be strongly considered by all small business owners as part of a comprehensive insurance program. At a minimum, all small businesses should request an Umbrella policy quote just to find out the cost.

A Commercial Umbrella Policy is sometimes referred to as Excess Liability insurance. Excess Liability Insurance is actually a more accurate description of the coverages provided by the modern "follow form" Umbrella Policy as will be explained later.

Umbrella insurance policies extent the coverage limits of the underlying liability policies. For example, assume that your small business carries an Umbrella policy with a limit of $1,000,000 Each Claim. Also assume that your business carries a General Liability policy with a limit of $1,000,000 and a Business Auto Liability policy with a limit of $1,000,000. In this example, the total limits of coverage to respond to a claim would be $2,000,000 for General Liability type claims and $2,000,000 for Business Auto Liability type claims.

Umbrella Insurance Policy Fulfills Two Major Purposes

1. Excess Coverage

The first is to provide additional limits of coverage (i.e., excess liability coverage) over and above the underlying General Liability, Business Auto Liability, and Workers Compensation / Employers Liability policies. Before this "excess" coverage is provided, the small business owner must maintain the underlying policies at a certain limit of liability to coordinate with the Commercial Umbrella insurance policy. The most common underlying limit requirements are as follows:

• General Liability: $1,000,000 Each Occurrence, $2,000,000 General Aggregate
• Business Auto Liability: $1,000,000 per loss
• Employers Liability: $100,000 Each Accident, $500,000 Disease-Policy Limit, $100,000 Disease-Each Employee

Failure to coordinate with these limits can result in the insured business owner having to pay out of pocket to reach the threshold level before the policy will respond.

2. Drop Down Coverage

The second is to provide "drop down" coverage to provide first dollar coverage for certain liability risks that are not covered by the underlying policies. This can occur when the exclusions under the Umbrella insurance policy are narrower than the exclusions under the underlying General Liability, Business Auto Liability, or Employers Liability policies. The "drop down" coverage is usually subject to a self insured retention that is similar to a deductible. Most self insured retentions are in the amount of $10,000 and must be paid out of pocket by the insured before the Umbrella policy will respond. The "drop down" coverage component seems to be disappearing on most modern policy forms resulting in a policy that may be more accurately described as Excess Liability Insurance.

Limits Available And Pricing

An Umbrella insurance policy may be purchased in increments of $1,000,000. Each $1,000,000 increment is subject to a minimum premium ranging from $500 to $1500. The actual premium may be higher than the minimum premium depending on the exposures to loss. The most common premium basis for exposures to loss include payroll, sales, and the number of vehicles that are insured. The Umbrella policy quote is often expressed as a percentage of the underlying premiums. For example, some Umbrella policies are priced at a rate of approximately 20% of the underlying liability premiums.

How High A Limit Is Needed?

Small business owners often ask their insurance agents "how high of an Umbrella Liability limit is needed"? In other words, should they purchase a limit of $1,000,000., $3,000,000, or even $5,000,000 or higher? It is impossible to answer this question. But, an educated guess can be made by the small business owner if he or she is provided with enough information to go through a brainstorming session.

Many business owners make the mistake of purchasing an Umbrella insurance policy with a limit that is high enough to cover their business assets. This is probably not the best approach to take. Instead, the small business owner should be asking themselves "how many persons could I kill or maim in one occurrence"? The answer to this question will vary by business type depending on the particular hazards of a given business. For most small businesses, the biggest exposure to killing or maiming multiple persons arises from the automobile exposure. For example, a company vehicle collides with a van full of school children resulting in two deaths and three serious injuries. For other businesses, the largest exposure to serious injury to multiple persons may result from a fire on premises, injuries arising out of performing a service on the premises of others, or from the sale of a defective product.

Once the small business owner has brainstormed to determine the worst case scenario based on their unique risk factors, the next step is to apply a dollar amount to each person that is killed or seriously injured. You may want to consult with a plaintiff's attorney in your state to determine the average wrongful death settlement amount or jury verdict. Once this amount has been determined, it can be multiplied by the number of persons who could be killed or seriously injured in a worst case scenario. The resulting product is the limit of Umbrella Liability insurance that may be needed. Of course, this is not a perfect system and is just a way to make an educated guess.

Should My Business Not Carry An Umbrella Policy To Avoid Becoming A Target?

The argument is sometimes proposed that a business should not carry an Umbrella Policy at all to avoid becoming a "deep pocket". While this argument does have a small amount of merit, the bigger concern is putting the business' assets and its future on the "chopping block" as a result of not having an Umbrella Liability insurance policy at all. Any business with significant assets or the prospects to accumulate significant assets should get an Umbrella policy quote. It is surprising how much peace of mind can be purchased for such a small premium amount.