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Updated Dec 13, 2023

What Is Commercial Umbrella Insurance?

Learn what umbrella insurance covers and how to decide if you need it.

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Jennifer Dublino, Senior Writer & Expert on Business Operations
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Most businesses carry different types of liability insurance. In particular, businesses need general liability insurance and workers’ compensation policies. When you have multiple policies and feel your business is at greater risk of a lawsuit, purchasing a commercial umbrella insurance policy can bring you additional coverage for less money. An umbrella policy covers several underlying liability policies to ensure you have the protection you need.

Here’s a deeper look at commercial umbrella insurance, what it covers and how to decide if you need it.

What is commercial umbrella insurance?

A commercial umbrella insurance policy is designed to add coverage to the liability limits of specific policies.

These are the primary types of business insurance policies to which commercial umbrella insurance adds coverage:

The commercial umbrella insurance policy could add anywhere from $1 million to $15 million or more in coverage to an existing policy. For example, if a general liability policy had a $1 million per-occurrence limit and the umbrella policy had a $5 million limit, the business would have a total of $6 million in liability coverage.

Did You Know?Did you know
A commercial umbrella insurance policy doesn't cover professional liability insurance claims, even if you have a professional liability insurance policy. To get more coverage here, you'd need to increase the coverage on the actual policy itself.

What does commercial umbrella insurance cover?

Commercial umbrella insurance adds a layer of additional liability coverage for specific policies a business owner may already have. It covers more than a claim’s settlement; it also pays for investigation and defense costs if the claim results in a lawsuit. Depending on the insurance carrier, some aggregate limits do not include the cost of investigation and defense. 

This aspect of commercial umbrella insurance is a significant plus for a business because lawsuits can quickly run into tens of thousands – if not hundreds of thousands – of dollars and would eat into the capped coverage.

What does commercial umbrella insurance not cover?

Your commercial umbrella insurance policy will not add coverage to your professional liability policy. This means that malpractice and errors and omissions policies do not benefit from an added layer of liability coverage.

What umbrella insurance covers

What umbrella insurance doesn’t cover

Customer injury

Professional errors

Libel

Your commercial property

Reputational damage

Your personal property

Auto accident liability

Employee discrimination

Product liability

Intentional damage on your part

Employee injury

Liability you willingly assumed under contract

Wrongful termination lawsuits

Liability for criminal activity

Example of commercial umbrella insurance claims

Say a company has a general liability per-occurrence limit of $500,000 and an aggregate limit of $1 million. Assume the commercial auto insurance limits are $250,000 per person and $500,000 per accident, and the commercial umbrella policy’s limit is $10 million.

Let’s further assume that a company had a particularly bad claim year. It has a person who slips on the floor, falls, and hits their neck on a display, becoming paralyzed. If this claim were for $5 million, the general liability policy would pay $500,000, with the umbrella paying another $4.5 million. There is still $5.5 million in the aggregate limit for the umbrella.

Assume they had a commercial auto accident later in the year with a liability claim of $300,000. The commercial auto insurance would pay the first $250,000. The umbrella would then kick in the additional $50,000.

How does commercial umbrella insurance work?

Umbrella coverage is additional coverage for liability policies. The underlying policy’s limit will be utilized first. The umbrella policy will kick in when it hits the max or cap. The umbrella coverage is used until it hits its cap.

When it comes to umbrella insurance, the per-occurrence limit is the same as the aggregate limit. A company can have several claims, but the annual aggregate limit caps the total amount the insurance company will pay in a claim.

Don’t confuse umbrella insurance with excess liability insurance. Both add coverage, but the excess liability insurance will add coverage to only one policy, usually general liability. Umbrella insurance covers multiple policies.

Who needs commercial umbrella insurance?

A business with significant liability risks and multiple types of business insurance policies should get a commercial umbrella policy. Adding umbrella insurance is generally a more cost-effective way of adding overall coverage, as opposed to increasing each liability policy’s limits.

Since liability claims can become quite expensive, and you never know when a massive claim can hit, it’s a good idea for all business owners to look at a policy’s costs and determine if it’s worth it.

Some businesses, such as contractors, may be asked for proof of insurance with specific limits when working with certain clients or on government contracts. In cases like this, the contractor would get an umbrella policy to add additional coverage to its other policies without affecting those limits.

In general, these are some parties that need commercial umbrella insurance the most:

  • Businesses with a lot of public exposure
  • Businesses with many commercial vehicles
  • Contractors requiring it from clients
  • Those engaged in hazardous industries
Did You Know?Did you know
Contractors' insurance needs are unique, with both mandatory and advisable policies to help cover the costs of repairs and replacements and deal with business lawsuits.

How much does commercial umbrella insurance cost?

The cost of your commercial liability insurance policy depends on how much coverage you want, your claims history and industry risk. You can get a policy for as little as $30 per month for up to $1 million in additional umbrella coverage.

In most instances, getting an umbrella policy will be less expensive than adding additional liability coverage to your underlying policies. Ask your insurance representative to run a quote both ways to see what’s most cost-effective while getting your liability coverage set up.

Shopping for commercial umbrella insurance

When you’re ready to look for commercial umbrella insurance, follow these steps: 

1. Decide on your desired level of coverage.

Your desired level of coverage will depend on your company’s net worth, your risk level and your budget. Once you decide the coverage level you want, start getting quotes from multiple insurance carriers to compare them.

2. Contact your current insurance carrier.

When shopping for commercial umbrella insurance, remember that you don’t have to purchase this policy from the carrier you used for other policies. However, your current insurance carrier may offer discounts or policy credits to existing customers. Getting a quote from your current carrier can give you a benchmark against which to evaluate quotes from other companies. 

3. If you have an independent insurance broker, reach out.

Since you have a working relationship with your broker, you may get faster service than going to a new broker. But if you don’t already use an independent insurance broker (one who works with multiple insurance carriers), find one and ask for at least three quotes. Independent agents can give you insight into which carriers have a better reputation for speedy claims processing and satisfactory claims resolution. 

4. Consider consolidating insurance policies with one carrier.

It’s ideal to shop for umbrella insurance, general liability insurance and workers’ compensation insurance at the same time with new carriers to see what type of package deal you can get. If you are unhappy with one or more of your current carriers, this is a good opportunity to make a move. Conversely, if one of your carriers has given you particularly good service, you should explore moving other policies to that carrier. 

In addition to the quote for commercial umbrella insurance, get a quote for all your insurance policies. Do this for all companies you consider. Some might have a higher price on umbrella coverage but offer a much bigger discount if you bundle your policies.

5. Evaluate your quotes on price, rating and coverage.

When comparing your quotes, the price will be a crucial factor. However, you should also evaluate and compare the proposed coverages in detail. Some companies might exclude something you want or give you lower coverage amounts. For example, Farmers Insurance offers umbrella coverage up to $10 million, while American Family goes up to only $2 million. 

Five agencies rate insurance companies on their financial strength: 

  • A.M. Best Company
  • Fitch Ratings
  • Kroll Bond Rating Agency
  • Moody’s Investor Services
  • Standard & Poor’s Insurance Ratings Services

Look up insurance carriers on your shortlist on multiple rating agencies to get an accurate picture of their financial strength. More stable insurance companies – those with higher ratings – typically cost more but are less at risk of going out of business and leaving you high and dry in the event of a claim. 

TipBottom line
Don't just get a quote for umbrella insurance. See how much you can save in insurance costs if you bundle policies with one carrier. The best liability insurance providers may offer discounts and credits for bundled policies.

Commercial umbrella insurance FAQ

Commercial umbrella insurance isn't a requirement, and you'll never be asked to prove that you have an umbrella policy. With that said, if you don't have a policy, you could be grossly underinsured in a serious claim. Someone could make a claim that exceeds your policy limits, and you'd have no additional coverage or protection. Your business could then be held liable for the difference between what your policy paid and the ultimate claim value. Choosing not to get an umbrella insurance policy could expose your business to high-value claims. This could be financially devastating to small businesses.
Insurance will cover you only for the policy's aggregate limits. If you exceed these limits, you're responsible for the value in excess of the insurance cap. For example, if the aggregate limit is $5 million and you have a claim for $6 million, you would be responsible for the extra $1 million. This is why increasing coverage where you can afford it is so essential. You are not absolved of responsibility just because you have an insurance policy. Claimants can still sue you for damages and losses, taking profits and assets from your business. While you can't insure your business for every scenario, you don't want to be underinsured based on industry standards. Talk to your insurance representative about the right amount of liability coverage.
You don't need to have all your insurance policies with the same insurance carrier to reap the benefits of an umbrella policy. You can have your general liability policy with Company A, commercial auto with Company B and umbrella with Company C. As long as the underlying policies have the minimum liability coverage required by the umbrella policy, they are covered. However, having all your policies with the same carrier is one way to save money on business insurance. You may get discounts or credits by having all policies with the same carrier. This is because the insurance company is better able to underwrite the risk together than separately.
Umbrella policies, even in high coverage amounts, are pretty inexpensive. Since they significantly reduce a company's risk, they are a good value. Typically, a $5 million commercial umbrella policy costs between $375 and $525 per year. A $10 million policy costs around $2,200 to $2,500 per year. Costs vary with industry, claims history and location. For example, nonprofit organizations have the lowest premiums for an umbrella policy, followed by retail businesses, while wholesale businesses and building design firms have the highest premiums.

Kimberlee Leonard contributed to this article.

author image
Jennifer Dublino, Senior Writer & Expert on Business Operations
Jennifer Dublino is an experienced entrepreneur and astute marketing strategist. With over three decades of industry experience, she has been a guiding force for many businesses, offering invaluable expertise in market research, strategic planning, budget allocation, lead generation and beyond. Earlier in her career, Dublino established, nurtured and successfully sold her own marketing firm. Dublino, who has a bachelor's degree in business administration and an MBA in marketing and finance, also served as the chief operating officer of the Scent Marketing Institute, showcasing her ability to navigate diverse sectors within the marketing landscape. Over the years, Dublino has amassed a comprehensive understanding of business operations across a wide array of areas, ranging from credit card processing to compensation management. Her insights and expertise have earned her recognition, with her contributions quoted in reputable publications such as Reuters, Adweek, AdAge and others.
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