Startup owners must be savvy about their venture’s insurance needs to guarantee more financial exposure in a loss. Better, you can be one step ahead by getting your startup an extra layer of coverage over your primary insurance.
That’s where a commercial umbrella policy comes into play. It’s almost impractical to adequately protect your business without a commercial umbrella policy. Umbrella insurance can help ensure your startup maintains its operations after catastrophic losses and unexpected financial storms, along with other typical business insurance policies such as general liability insurance, business auto insurance, and employer’s liability insurance.
This article expounds more about commercial umbrella policy to help you understand what it is and how it can be a life-changer to your entity’s insurance needs.
What is a commercial umbrella policy?
Commercial umbrella insurance protects your business from massive unexpected events that exceed primary insurance limits. It sits on top of other insurance policies and protects your startup against potential business-ending lawsuits and catastrophic losses, and can cater to legal defense costs.
In sum, umbrella insurance transcends the scope and amount of coverage provided by other insurance policies. What’s more, an umbrella policy can provide coverage after reducing primary insurance or exhaustion by claim payments. Also, the commercial umbrella policy covers multiple locations, whether an incident occurs in the office or a client’s locale.
Note that you cannot obtain umbrella insurance without general liability insurance. Instead, a commercial umbrella policy provides additional coverage on top of your standard liability policy. Therefore, commercial umbrella insurance is a supplemental policy and not a standalone policy.
Without commercial umbrella insurance, you might have to pay the exceeding limits of your existing policies from your pocket. For instance, an employee can get into an accident while delivering products. Your commercial auto liability policy might not cater fully to the property damage and bodily injury costs, forcing you to pay the amount that exceeds your policy limit.
As you can imagine, this can place a massive financial strain on startups and SMEs, whereby insubstantial funds are a significant impediment hindering their maturation. Here are other reasons to acquire umbrella insurance:
Why you need umbrella insurance
The most notable benefit of a commercial umbrella policy is to offer protection against substantial losses that their primary insurers don’t provide. For example, some lawsuits cost millions and involve severe injury or auto accidents. In the event of such, a commercial umbrella policy could cover the indictments that surpass your general commercial liability, employer’s liability, and hired and non-owned auto insurance policies.
Also, entities without appropriate umbrella insurance are at risk of going bankrupt, especially in a litigation-prone industry such as startups in the construction industry. Similarly, if your startup is inherently dangerous, you produce hazardous materials, or there is a high risk of occupational injury to your workers.
Some businesses must obtain a commercial umbrella policy to satisfy limit requirements in a contract. This is especially the case for firms in the tech industry, whereby IT contracts often mandate you to carry a certain amount of insurance cover to ensure client protection in case of a cyberattack. Similarly, most government contracts require a contractual obligation to have business umbrella insurance. What’s more, your clientele will be more satisfied knowing there are policies covering them in case of accidents. In return, this gives your startup an upper edge against competitors.
What does a commercial umbrella policy cover?
Essentially, umbrella insurance covers damages or settlements resulting from claims against your startup for bodily injury, property damage, or personal and marketing affronts. In addition, it caters to the expenses of defending your firm against lawsuits covered by the policy. Here is a detailed overview of how a commercial umbrella policy operates:
- Suppose there is a claim beyond your underlying policies’ limit, umbrella insurance steps in to cover the exceeding limit. For example, your startup’s auto insurance policy covers $100,000 in bodily injury, and your venture gets sued for $500,000. Umbrella insurance will cater to the difference instead of protecting the extra $400,000 from your pocket.
- If multiple claims max out your primary insurance policies, a business umbrella policy comes into effect to cover claims exceeding the aggregate limit of the other insurance policies.
- General liability insurance covers assets only belonging to your organization. As a result, you are liable to pay for damages for assets or equipment that you hired or rented unless you possess umbrella insurance.
Finally, here are the typical costs covered by a commercial policy cover:
- Legal fees
- Medical expenses
- Workers injury lawsuits
- Defamation costs
- Reputational damage
- Court judgments and settlements
What’s not covered by commercial umbrella insurance
Although umbrella insurance offers proactive peace of mind, it doesn’t cater to all claims types. In addition, it doesn’t extend the limits of specific policies, including commercial property insurance. Don’t expect your commercial umbrella policy to cater to the following:
- Business property claims- You will have to rely on property insurance in case of business property damage.
- Error and omissions claims
- Illegal activity and malpractices
- Employee theft
- Workers discrimination
- Professional liability claims
What’s more, umbrella policies have aggregate limits depending on the insurance provider. In most cases, the limits depend on your startup industry and range from $1 million to $15 million. Also, it’s vital to understand the commercial umbrella policy vividly and gather what’s covered and isn’t covered by insurance policy claims. Umbrella insurance only provides excess coverage over the policies included in the schedule of the primary insurance.
Does your startup need a commercial umbrella policy
Ultimately, whether your startup needs a commercial umbrella policy depends on whether you are at risk of accidents, injuries, or lawsuits. Nonetheless, regardless of their size, most businesses can leverage the extra protection accorded by a commercial umbrella policy.
Also, if you intend to remain solvent and competitive, a commercial umbrella will go a long way in maintaining proactive peace of mind as you juggle other startup operations. Finally, note that excess liability isn’t synonymous with an umbrella policy. The former provides additional coverage for only one of your startup’s liability policies, while a commercial umbrella policy covers multiple policies.
Now that you are knowledgeable about a commercial umbrella policy, get in touch with a relevant and licensed broker and acquire one.