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Umbrella Insurance for Small Business – Is More Always the Better?

Umbrella Insurance

Whether you’re a yoga teacher, a plumber, run a daycare, or have any other type of small business, building your business matters to you. That’s why you have business insurance. Your commercial insurance policies show clients that you are professional and trustworthy. It also gives you the confidence of knowing that if something goes wrong, you’re business is covered.

When you choose your small business insurance policy, you might hear about business umbrella insurance. If you’ve been wondering what is umbrella insurance for small business, we’re here to explain it, and help you decide whether or not it’s the right choice for your small business.

How does a business umbrella policy work?

A commercial umbrella policy is different from other types of business insurance. It’s designed to act like an extension to your existing policies, in case you need more insurance coverage. A business umbrella policy only kicks in after you’ve passed the limit on your other business insurance. This means that you can’t buy only a business umbrella policy, without buying any other type of insurance.

For example, let’s say you have general liability insurance with a limit of $1 million. If a visitor slips and injures their back at your construction site, they could sue you for $2 million in medical damages. The first $1 million is paid for by your general liability insurance. Without umbrella insurance for small business, you would have to pay the next $1 million yourself. That could totally wipe out your profits for the year! But umbrella business insurance steps in and pays the remainder.

What does business umbrella insurance cover?

Business umbrella insurance can cover more types of risk than any other business insurance policy. Most business insurance policies cover a single type of risk. For example, workers’ comp covers you if one of your employees is injured on the job. Auto insurance covers damage to your van. But if you already have commercial liability insurance, auto insurance, and workers’ compensation, you could add a single commercial umbrella policy to get extra coverage for all three types of risk.

Business umbrella insurance can extend your coverage in other ways, too. If your general commercial liability policy only covers you for work within your town, your umbrella policy might cover you for work within an extra 20 miles radius. It also covers many types of expenses, including legal expenses, medical expenses for the litigant, and any damages you have to pay as a result of lawsuits.

Generally, business umbrella insurance is sold in increments of $1 million. So every business umbrella policy gives you an extra $1 million of insurance coverage. It’s most common for businesses to buy insurance coverage of $1 million per event and $2 million aggregate.

Although business umbrella insurance sounds like it can handle anything, there are some things it won’t cover:

  • Any claim that you make that isn’t covered by an underlying policy. Eg. If your assistant falls off a ladder and breaks their ankle, you can only claim for their medical expenses through your umbrella policy if you have a workers’ comp policy in place already.
  • A claim that is fully covered by your other business insurance policies
  • Commercial property insurance
  • Professional liability insurance, also called errors and omissions insurance.

How much does commercial umbrella insurance cost?

One of the best things about commercial umbrella insurance is that it usually costs less than increasing the coverage you have with your existing insurance policies. An extra $1 million in coverage on your general liability policy could double your costs, but a business umbrella policy could be just a few dollars more per day.

Working out how much commercial umbrella insurance costs depends on a few factors:

  • How much coverage you want. You’ll usually pay more for every $1 million extra in umbrella insurance coverage.
  • The amount of traffic at your workplace everyday. For example, if you’re a busy retailer with hundreds of customers in the store each day, you’ll pay more than a smaller retailer with just a few dozen daily visitors. That’s because the more people come to your workplace, the bigger the chance that someone will slip and fall and sue you for medical damages.
  • Whether you work at someone else’s property. If you work at your client’s home, you’ll pay more for your business umbrella policy because there’s a high risk that you’ll damage some of their property.
  • Your industry. Some industries have a higher risk profile than others. Contractor umbrella insurance costs a lot more than umbrella insurance for photographers, because they work on the client’s site and use heavy machinery and dangerous tools, which raises the risk of an accident occurring to a third party or their property.

The average small business will pay between $500 and $1,500 per year for their commercial umbrella insurance, although it could be as little as $400 or as much as $2,000 or more annually.

Do you need a commercial umbrella insurance policy?

Deciding whether you need commercial umbrella insurance means thinking carefully about the level of risk. Here are some good reasons to get umbrella insurance for your small business:

  • You have a high exposure to risk, such as working as a commercial electrical contractor in busy office sites where people often walk past you as you work.
  • You want to extend your existing coverage, but adding to your existing policy is very expensive. Umbrella business insurance often costs less than doubling your current general liability policy.
  • You have a lot of different insurance policies, such as van insurance, workers’ comp, and general liability insurance, but they all have relatively low coverage limits.
  • Your business doesn’t have a lot of working capital to be able to cope with a large and sudden lawsuit.

Despite all these pros for commercial umbrella insurance, it might not be relevant for your business right now. Here are some things to bear in mind:

  • A business umbrella policy can’t stand alone. That means that you still have to pay for basic general liability insurance, workers’ comp, and other insurance policies.
  • If you have a low-risk business, like a florist’s shop, you’re unlikely to exceed your existing general liability coverage, making a commercial umbrella insurance unnecessary
  • Umbrella insurance doesn’t include commercial property insurance and professional liability insurance. If these are the biggest areas of risk for your business, umbrella business insurance might not be worth it for you. For example, a landscape photographer’s biggest risk is damage to their expensive equipment. A marketing consultant faces more risk from clients unhappy with their professional advice than to have an employee get injured at work.

Don’t forget the basics

There’s no point paying for extra insurance that you won’t need. Before you run to buy a commercial umbrella policy, check that you have adequate general liability insurance. General liability insurance is the most important business insurance policy, covering you for damage to a third party’s property, medical damages if someone is injured on your premises or by any of your work activities, and any accusations of damage to someone’s professional reputation.

Professional liability insurance is also key. It covers your business for accusations of malpractice, professional negligence, and the consequences of professional mistakes like getting the wrong color tiles for a client’s bathrooms.

Whether you’re buying business umbrella insurance, general liability insurance, or professional liability insurance, or all three, make sure to choose an insurance company that delivers everything that you want. Next Insurance provides free, unlimited certificates of insurance, free additional insured, and allows you to apply online in just a few minutes, as well as delivering tailored insurance policies that match the needs of your business type.

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