17 Aug Commercial Umbrella Insurance: 3 Questions to Ask Yourself Before Purchasing
August 17, 2018
Post by Byars|Wright
By: Evan Chambers, Account Executive
As a business owner, you’re probably familiar with commercial umbrella insurance, or the coverage that comes into play when your underlying liability limits aren’t enough to cover the claim. While having an umbrella could possibly save your business from bankruptcy after an unfortunate event, without one, that money would be coming out of your pocket. For many businesses, that could spell disaster.
While the majority of business owners understand the need for an umbrella policy, there’s not always a cut-and-dry way to determine how much umbrella coverage is needed. More often than not, it’s going to require a risk management discussion between the owner, Chief Financial Officer, and other top-level management in order to determine the probability of the company experiencing a loss that could get into umbrella limits. When determining how much umbrella coverage your business needs, you can start by asking yourself these three questions.
How much commercial umbrella insurance is required for my industry?
Whether or not a specific amount of umbrella insurance is required depends a lot on the industry. For example, when it comes to construction, many times the general contractor on the job will set certain insurance requirements, including how large your umbrella policy should be. A lot of times it ranges from $5 million to $10 million depending on the size of the job.
How many drivers do I have on the road?
It’s well-known in the insurance industry that the majority of umbrella claims come from automobile loses. In the last 8 years or so, insurances companies across the nation have lost a significant amount of money insuring automobiles, both commercial and personal. To no surprise, this is largely due to distracted driving, with our cell phones being the main culprit. Along with distracted driving, the economy has picked up tremendously in the last 8 years, and that means there are more people on the road – not only more families, but company vehicles as well.
You see these types of tragic stories on the news all the time. All it takes is one company driver taking their eyes off the road for a few seconds to cause a deadly accident. If this were to happen to your business, and you do not have an umbrella policy, will the auto limits alone be sufficient enough to cover the claim? Probably not.
What assets does my business have, and how much can it absorb?
As a business, you must decide that if a tragic event happens, can you A) Pay it out of pocket, or B) What part of your business are you willing to liquidate to cover the loss? If neither is a viable option, the business needs to transfer that risk by means of an umbrella policy.
While the costs of an umbrella policy are typically very low for the amount of insurance you’re getting, most business owners often do not realize how cost-effective umbrella policies can be. Depending on a few factors like the type of industry, businesses can pay around $1,000 a year for $1 million in umbrella limits. For most business owners, that’s an easy decision.
Companies that have a lot of vehicles on the road, operate in a high hazard industry, or want to protect the company’s future need to evaluate their potential for a large loss and manage that risk with an umbrella policy. Unfortunate events happen to the best of companies, but those events do not have to cripple the business.
Byars|Wright is a locally owned and operated independent insurance agency with five offices in the greater Birmingham area – including Jasper, Gardendale, Homewood, Alabaster, and Cullman – that has developed into a major provider of commercial and personal insurance. Since 1946, the agency has expanded its scope of business and delivers a wide-range of insurance products with quality coverage at competitive prices. Byars|Wright has been designated a Best Practices Agency by the Independent Insurance Agents and Brokers of America and was also named “Best Companies to Work For in Alabama” by Business Alabama in 2016, 2017, 2018. 2019. We Build People, Protect Relationships. Byars|Wright is Where Relationships Matter.