By Sara Giguere

Most companies purchase some form of insurance, such as business automobile, workers compensation, commercial package policy, and other types to protect their business. Sometimes it is a requirement, either by law or the bank. However, the commercial umbrella policy is often overlooked or not purchased because in many cases it is voluntary.

It makes good business sense to buy commercial umbrella coverage. It increases a business’ limits of liability over and above their commercial automobile, general liability, employer’s liability, and other underlying policies. As plaintiff lawsuit settlements continue to grow, it’s not unusual to see them in the multiple of millions, and yet the maximum liability available under the standard Commercial Package Policy is $1 million. It’s been that way for over 50 years.

Just recently, you’ve begun to see some insurance companies offer $2 million limit on their commercial policies. Times have changed. A business owner’s largest asset is often the net worth of the business. Their shareholders work a lifetime growing its value with the intention of selling the business to cash out and enhance their retirement lifestyle. A commercial umbrella will help provide additional liability protection against ever-increasing lawsuit settlements.

Below are a few more reasons to purchase a commercial umbrella policy:

  1. To protect your assets: A business faces risks every day, and often the causes are due to employee negligence, and a business can be held vicariously liable. One employee mistake can have serious financial adverse effect. It could be an accident driving a vehicle for the company, or a faulty product issue. A business owner should consider purchasing as much liability protection as they can reasonably afford.
  2. Cost-effective: It’s relatively affordable and increases your coverage (double, triple, quadruple, and more). Pricing is dependent upon a number of variables, such as gross sales, number of vehicles, underlying premium, claim history, business classification, etc. Compared to the overall daily costs to operate a business, it’s a small fraction.
  3. Clients often demand it: If your business serves other organizations, they may require a minimum limit of liability. For example, they may require $5 million of coverage in order for you to enter into a contract with their firm or provide service on their property. Your commercial package policy may only have $1 million of coverage. To satisfy the client’s $5 million requirement, the business would need a $4 million umbrella policy.
  4. Insurance-paid corporate legal representation: Lawsuits can be very expensive to defend, and the awarded judgements even greater. Umbrella policies pay for those related covered litigation costs. The more liability protection you have in a serious claim, the greater peace of mind you will enjoy.

The cost of a commercial umbrella policy should be built into the company’s product or service. Speak to your insurance agent on how best to increase the company’s limit of liability with a commercial umbrella policy.

Sara Giguere, Certified Insurance Counselor, is part-owner and CFO for Murray & MacDonald Insurance Services Inc. She can be reached at (508) 289-4140 or sara@riskadvice.com.