Small Business

Liability Insurance: Umbrella Policy

Updated on November 29, 2019


As a business owner you may encounter many unexpected incidents that can lead to legal disputes and lawsuits. While general liability insurance may cover most situations, there may be times when an umbrella insurance policy is needed. It’s important to understand what an umbrella policy is, what it can cover, and why your business may need this type of insurance coverage.

What is an Umbrella Policy?

According to the Insurance Information Institute an umbrella policy is defined as a policy that covers above and beyond what your primary liability policy will cover. Umbrella insurance policies can be obtained for home, auto, or business. If you’re operating a business, this is a supplemental type of insurance that will provide extra protection for your business. An umbrella insurance policy is coverage that many small business owners may need in order to cover themselves adequately.

What Does an Umbrella Insurance Policy Cover?

Business Insurance Now states that an umbrella policy can add an extra layer of protection to your existing liability coverage. For example, if your general liability policy covers you for $1 million and a legal settlement is for $2 million, the umbrella insurance policy can cover the extra amount. Your umbrella policy may cover legal expenses even if you’re not found to be legally responsible for an incident. An umbrella policy will provide added protection against property damage and physical injuries. Most insurance companies that provide umbrella insurance require that general policies be purchased before buying an umbrella insurance policy. This is because you generally must draw on your primary insurance policy first, before you can drawn on your umbrella insurance policy.

Why Would a Business Owner Need an Umbrella Insurance Policy?

Many people may believe that general liability insurance is enough to cover all their potential insurance needs. If you are sued for a large amount, however, general liability might not be enough to cover all your assets. Investopedia states that you probably need an umbrella policy even if you don’t have a lot of assets since future income may be garnished. A business might need to customize an umbrella policy to give more coverage to specific areas in their business. The following are some specific examples of when you may need to expand your coverage with an umbrella insurance policy.

  • Delivery is a crucial aspect of your business but your auto policy only covers a limited area. An umbrella policy could expand the area for which you’re covered.
  • If you operate a business in which the equipment you use is very expensive, you will probably want to customize an umbrella policy to cover any potential damage to that equipment.
  • If your business regularly deals with clients, you will likely want to have an umbrella insurance policy to cover potential damage to those clients. This is especially true in cases where you are handling a client’s assets or the clients may be harmed in a way that prevents them from working or otherwise earning their normal income.

Shop for Insurance Policies

As a business owner, you should generally try to find the best insurance policies available to cover the specific needs of your business.

If you are looking for health insurance, you are probably looking for a health insurance marketplace that provides an easy to navigate website that can compare premiums, eHealth’s site can provide a variety of plans. Contact eHealth for more information.

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