Does your business need umbrella coverage? (Image via FreeFoto)

When it comes to buying the insurance you need to protect your small business, the wide range of options can be confusing and overwhelming.  There are so many different types of policies and different level of coverage that it isn’t always easy to know if you have all the coverage you need, if you are underinsured, or if you have policies that provide coverage for risks you don’t face.  One of the most common questions small business owners ask about the coverage they need is about umbrella coverage and whether or not they need it.

Surprisingly, although it is the type of insurance almost everyone and almost every business should have, it is not as well understood as the other common coverage types like auto, liability, and worker’s comp.  This can have serious, long lasting consequences for business owners of all types.  To understand why Umbrella coverage is so critical to small businesses, you need to first understand what it is and what it does.

Umbrella insurance is a kind of liability coverage.  These policies extend, like an umbrella, over most of your other liability policies like your business auto and your general liability.  If there is a claim that breaches the upper limit of one of your base policies, the Umbrella policy provides coverage over and above that limit.  For example, if you or one of your employees were at fault in an auto accident where your company’s car caused damage in excess of the $50,000 property damage limit on your business auto policy, your company would be responsible for paying every dollar over that limit out of pocket.  The insurance company pays $50,000, you pay the rest.   Now, if your business has a $5M Umbrella policy, the insurance company for your base policy would pay for any damages up to $50,000 and then the Umbrella carrier would pay for any damages from $50,001 to $5M.  To break this down, having that Umbrella policy in place could mean the difference between your company paying nothing and your company being responsible for millions of dollars of damages.

When looked at from this perspective, it is clear why many businesses must have an Umbrella policy in place to protect the viability of the business.  In order to determine if your business needs this type of coverage, here are some things to consider.

If your business requires you or any employee to operate a motor vehicle as part of doing business, you must have an umbrella policy over your business auto policy.  Car accidents can lead to incredibly expensive liability lawsuits and even minor accidents can result in medical bills that exceed your business auto policy limits.  Don’t take the risk; if your business has auto coverage, you need an umbrella policy.

If your business has assets, you need umbrella coverage.  It doesn’t take much these days for someone to file a lawsuit and even if you win, the cost of defending yourself can wipe out your available cash and even your businesses assets.  If you lose, the situation can quickly compromise your entire business.  Umbrella coverage protects you from the high costs associated with getting sued.

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