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Commercial Liability Insurance vs. Umbrella Policy: Key Differences

Commercial Thursdays

Business owners face numerous risks. To manage these risks, they need insurance. It sounds simple in theory, but it can be complicated in practice. Just as there are many different types of risks, there are many different types of insurance. Two that can easily be confused are commercial general liability insurance and an umbrella policy.

Commercial General Liability Insurance

To understand commercial general liability insurance, let’s examine the name. First, it’s a type of commercial insurance, so it’s for businesses. It’s also a type of liability insurance, so it covers damages experienced by third parties, such as customers. It’s also general, but this doesn’t mean it covers everything. Rather, it differentiates it from other types of liability insurance, such as professional liability insurance.

Commercial general liability insurance covers claims related to property damage and bodily injury. These claims could be caused by incidents that occur on your premises, for example, if a customer falls in your building, or your employee makes a mistake that causes damage to someone else’s property. It could also be the result of misleading advertising of your products.

Umbrella Policy

Umbrella insurance provides extra coverage that goes beyond the limits of your other policies. For example, if you have a $500,000 auto insurance limit and an umbrella policy with a $1,000,000 limit, the umbrella would kick in if the auto insurance limit was exhausted.

The underlying policies are there to protect against everyday claim scenarios. The umbrella policy is there to cover the worst-case scenarios. For example, you won’t need the umbrella to cover most auto liability situations, but you probably will need the umbrella if the auto liability involves a fatality.

An individual claim may be for a few thousand dollars, or it may be for millions of dollars. If a claim exceeds your policy limits, you’ll be on the hook for the difference. A major claim could put your company out of business. That’s why having an umbrella policy can be very beneficial.

Why Not Buy Higher Limits on the Underlying Policies?

Theoretically, you could buy very high limits on your underlying liability insurance. However, having extremely high limits for every policy may not be ideal. It’s expensive, for one thing, since higher limits require higher premiums. Maintaining high limits on every policy adds up, and you need to keep your costs down.

An umbrella policy provides a practical solution. It provides extra coverage that exceeds the limits of your other liability policies. It may also provide additional coverages not included in other policies, filling in dangerous gaps that leave your business exposed. Furthermore, umbrella policies tend to be surprisingly affordable.

If you have a claim, you would look to your regular liability policies first. If the claim is covered by the policies, your umbrella policy will not be used. However, if the claim is not fully covered, you can then turn to your umbrella policy.

Commercial Liability Insurance vs. Umbrella Policy: Which Do You Need?

When looking at commercial general liability insurance and umbrella policies, it’s not a matter of either/or.  An umbrella policy is designed to provide extra coverage beyond the limits of other policies. Because of this, it cannot stand alone. That is, you can’t only have an umbrella policy. You must combine it with other policies.

So, if you are wondering if you need commercial liability insurance or an umbrella policy, the answer is that you definitely should have commercial liability insurance and it’s highly recommended that you get an umbrella policy too.

As always, be sure to read your policies carefully so that you understand what is covered and what is excluded. Talk to your insurance agent to make sure your coverage limits are high enough to provide adequate protection.

Need commercial liability insurance or an umbrella policy for your business? Get a quote here.


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