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.