Umbrella coverage, also known as excess liability insurance (ELI), is one of the most important types of insurance your company can buy. It protects your business from holes or limits in existing policy coverage as well as from financially draining lawsuits. Just as you carry an umbrella to protect you from a potential downpour, umbrella coverage protects your company from the types of claims that could close your business.
Businesses choose umbrella coverage essentially to back up the limits contained in their underlying liability policies (commercial general liability, business auto, employer liability, workers’ compensation and professional liability.) For the most part, it is used to cover exceptionally large events or losses with low probabilities of occurrence. Without it, these events – as few and far between as they may be – would be financially devastating to many companies.
All types of companies would benefit because umbrella extends coverage so dramatically at a relatively small additional cost, it's usually worth the price. The amount of coverage needed will always depend on the total value of your assets. Here’s how it works:
Assume a jury ordered your business to pay $3 million in damages for a liability claim, but your general liability policy has a $2 million limit. Your company would normally be required to cover the additional $1 million. However, with a $4 million umbrella policy, the $2 million commercial policy would exhaust, and then the umbrella policy would cover the outstanding $1 million.
Ultimately, umbrella coverage acts as a sort of dual policy, providing coverage in two ways:
- Paying liabilities in excess of existing policy limits
- Providing coverage in areas not included with existing policies
An umbrella policy also provides extra coverage in other areas by using a self-insured retention (SIR), a dollar amount that functions like a deductible. In umbrella coverage, the SIR will vary by situation and by state, but it starts at $10,000. So if it is being used in areas without any other basic coverage, it will kick in after you pay the set SIR.
Save money and cover more assets
Umbrella coverage is also beneficial because an effective policy can save your business money and cover more assets by using fewer individual policies. However, depending on your policy, some coverage may be excluded. Common exclusions include employment practices liability, professional liability and product recall coverage.
A Bremer Insurance Agent can help you understand how umbrella coverage an be part of your risk management strategy. Your agent will work with you to understand your specific risks and offer coverage solutions to protect your company assets.
- This content is provided for informational purposes only. The information provided herein is not intended to be exhaustive, nor should it be construed as advice regarding coverage. Eligibility for coverage is not guaranteed and all coverages are limited to the terms and conditions contained in the applicable policy. © 2008, 2013 Zywave, Inc. All rights reserved.