Understanding how an umbrella works, think you are looking at a low building with a tall flat roof. The roof has overhangs that extend beyond the building in many directions.
The building’s floor and walls will represent your basic policies. The roof represents your umbrella. The height of the building reflects the limits provided by your basic commercial umbrella policies. The density of the roof reflects the restriction provided by your umbrella. The overhangs on the roof represent coverages provided by your umbrella that aren’t included in your basic policies.
An umbrella affords valuable protection against large lawsuits that could devastate your firm. Before purchasing a policy, however, there are several things you should understand.
The limit of your company’s needs greatly depends on the essence of your business. For example, hotels, crane operators, and pharmaceutical manufacturers are prone to catastrophic losses. They need better umbrella limits than say, a retail store.
The umbrella ought to provide coverages that are not afforded by your primary liability policy.
The coverages that your company needs can depend on the kind of business you conduct. For example, if your company operates a brewery, you might choose an umbrella that includes liquor liability coverage. Likewise, if your firm owns a boat for entertaining clients, you might opt for an umbrella that includes watercraft liability coverage.
Umbrella premiums differ depending on the carrier, the limits, and the coverages you just bought.
The scope of coverage afforded by an umbrella can vary widely from one insurer to the other. Thus, it is important to shop around and compare policies. A good place to start is to obtain an umbrella quote from the insurer that issued your primary general liability policy. Once you have a quote, you can use it as a basis for comparison.
There are a few things to keep in mind when shopping for an umbrella. First, many umbrella insurers have replaced “legalese” with simplified language like that found in most primary policies. This has made umbrellas a lot simple to read. However, some umbrellas are so similar to the basic policy that they are practically mirror images. These so-called umbrellas may afford cheap if any, the coverage that is not provided by the primary policy.
Secondly, an umbrella policy may contain exclusions that aren’t found in your primary policies. Alternatively, an umbrella may consist of the same type of exclusion as your primary policy, but the exclusion in the umbrella may be broader. For instance, the expected or intended injury exclusion in your basic liability policy provides an exception for bodily injury or property damage that results from the use of reasonable force to protect persons or property. The exclusion in your umbrella policy does not contain these exceptions.
Thirdly, some umbrellas contain self-insured retention or “SIR.” It represents the amount your firm will pay out of pocket for each occurrence that is covered by the umbrella but not the basic policy.