Commercial Umbrella Insurance vs. Liability Insurance: What Is the Difference and Why It Matters 

What if you were leaving your business vulnerable and you did not even know it? 

If you own a company, you must decide whether to protect it with commercial umbrella insurance or general liability insurance. Each of these policies offers unique benefits and drawbacks. However, if you do not know what they are, you may not be able to give your company the protection it deserves. 

How do each of these policies work? What can they offer you, and which one is right for your business? To answer all of these questions and more, we have put together the ultimate commercial insurance comparison. Keep reading to discover everything you need to know about keeping your company safe, no matter what. 

What Is Liability Insurance? 

Commercial liability insurance is the most common kind of commercial policy. It is used by entrepreneurs to protect their business against claims of wrongdoing. These policies can help prevent you from having to go to court. And if you still end up getting sued, they can cover your legal fees and keep your company in business. 

With that being said, there are multiple kinds of coverage from which to choose. You need to know about the different types of policies you can choose from, as well as liability limits and excess liability coverage. Only then will you be able to tailor business insurance to your unique needs. 

Types of Liability Coverage (General, Professional, Product) 

General liability insurance protects your business against claims of personal injury, bodily injury, and property damage; if someone thinks you are liable for causing such damage, this policy will help pay for settlements you make as well as your legal fees. Meanwhile, professional policies protect against mistakes you might make in rendering services, which is why they are sometimes called “errors and omissions” policies. And product policies are designed to protect against claims that the products you make have caused bodily or property damage. 

Typical Limits and What They Cover 

Liability limits determine how much a policy will pay out, and any damages beyond that amount must be paid as out-of-pocket expenses. Small businesses typically get $1 million in coverage for occurrence and $2 million for aggregate. This means that they can receive up to $1 million in payout for a single event, but cannot receive more than $2 million for the length of the policy. 

What Is Commercial Umbrella Insurance? 

An umbrella policy is a companion piece to your existing liability insurance coverage. In short, it is designed to provide you with excess liability coverage that will pay for damages exceeding your general coverage. 

How does this work, though? And what are some common scenarios where businesses just like your own would benefit from commercial umbrella insurance? Below, you will find all of the answers to these questions. 

How Umbrella Coverage Extends Beyond Liability Limits 

An umbrella policy has its own limits, but it will not pay out on any claim until your standard commercial coverage is exhausted. So, if your liability policy maxes out at $100,000 and the damages total $120,000, the remaining $20,000 would come from your umbrella policy. Otherwise, you would have to pay that amount out of pocket after you reach the limits of your standard policy. 

Common Scenarios Where Umbrella Insurance Helps 

If you own a physical business, such as a store or restaurant, a customer might fall down and sue you for expenses such as medical bills and lost wages. The lawyers may agree to a settlement of $1.5 million, but your commercial policy will not pay more than $1 million per occurrence. 

But if you have a supplemental policy, you will not have to worry about providing an additional half a million out of pocket. Remember, this is just one of many common liability claims that require umbrella insurance coverage. 

Key Differences Between Umbrella and Liability Insurance 

Obviously, these types of policies are closely related. But to understand exactly what your business needs, it is important to know the key differences between liability vs. umbrella. This includes both the coverage limits and the scope of these different policies. 

Additionally, you need to know exactly when your supplemental policy would kick in and the cost of each policy. Only then can you decide whether you need both kinds of protection or whether your business simply needs commercial liability insurance. 

Coverage Limits and Scope 

Business insurance coverage limits differ by policy. For example, a commercial liability policy usually has an annual limit of $2 million and will pay out if you are held liable for things like bodily damage and property damage. A commercial umbrella policy, however, typically has a limit ranging from $1 million to $5 million, and it will only pay out on a claim once your standard coverage is completely exhausted. 

When Umbrella Insurance Kicks In 

An umbrella policy functions as a kind of asset protection insurance, keeping you from having to sell off key assets in order to pay major out-of-pocket costs. It kicks in after your existing liability coverage has been used up. 

Cost Comparison 

Commercial liability insurance for businesses typically starts around $500 per year and goes up depending on your business. Umbrella policies are often cheaper (usually costing no more than $300 a year), making it very affordable to add to existing policies. 

Why Businesses and Families Might Need Both 

When learning more about umbrella and liability policies, you may be wondering which one to select for your business or family. However, you should know that umbrella coverage cannot be purchased as a completely separate entity. Instead, you must already have some form of liability coverage in place for the new policy to supplement. 

With that being said, businesses and families alike are better off with both forms of coverage. Having this double layer of protection can offer the peace of mind you deserve. Furthermore, it can help to protect your current assets and your future earnings. 

Real-Life Examples of Claims Exceeding Liability Limits 

Many think there is no way they would ever exceed their current liability limits. However, it happens more often than you might think when customers slip and fall (or get injured another way) at your business. That is because they may not just sue for medical bills: They may also sue over things like loss of work, potential lifelong disability, and compensation for their pain and suffering. This can easily exceed $1 million, forcing you to pay any amount over your limit out of pocket. 

Protecting Assets and Future Earnings 

If you have to pay out of pocket once liability coverage is exhausted, you may be on the hook for hundreds of thousands of dollars. Paying this amount often requires people to sell valuable assets like homes, and they may lose future earnings once their wages are garnished. In this way, umbrella policies protect your future by ensuring you will not have to sacrifice your house and years of future income over a single claim. 

Protect Your Business with the Right Coverage Today 

Now you know more about umbrella insurance and liability insurance. This includes how each policy works and what they can both do to protect your company. But do you know where you can find a carrier who cares about your company just as much as you do? 

Here at InsureOne, we specialize in protecting hardworking entrepreneurs just like yourself. When you are ready to give your business the protection it deserves, come get a quote online. If you would rather speak to one of our trained agents, you can also pick up the phone and give us a quick call at 800-836-2240. Finally, do not hesitate to come find an InsureOne office near you. 

FAQs 

Is Umbrella Insurance Only for Businesses? 

Umbrella policies are not limited to businesses. In fact, many individuals enjoy having such a policy because it will pay out in the event a claim fully exhausts the liability limits of their homeowners or automobile coverage. 

Can Umbrella Insurance Cover Personal Assets? 

An umbrella policy does not directly protect your personal assets. However, it supplements existing liability coverage and can help protect assets such as a home or car that might be threatened if you had to otherwise pay significant out-of-pocket fees. 

How Much Umbrella Coverage Do I Need? 

Most small businesses get between $1 and $5 million in commercial umbrella coverage. It is best to discuss the matter with a trustworthy carrier like InsureOne to figure out what works best and potentially customize a commercial package policy. 

Does Liability Insurance Cover Lawsuits? 

A liability policy will cover legal fees up to a certain limit, which offers financial protection to those getting sued. If the fees exceed the limit of your standard commercial coverage, you will have to pay them out of pocket unless you have an umbrella policy. 

Are Umbrella Policies Expensive? 

Most umbrella policies only cost a few hundred dollars a year, which is a small price to pay for millions of dollars’ worth of asset protection insurance. Remember, getting multiple quotes and doing a commercial insurance comparison is the best way to save on your premiums each month.