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Small Business Umbrella Insurance Made Easy

Small Business Umbrella Insurance Made Easy; Learn what small business umbrella insurance is, why you might need it, and if it's right for you.
Susan Guillory
Susan GuilloryUpdated August 29, 2022
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You put a lot into your small business, so it’s only natural that you want it to be protected just in case there’s an accident on your premises or something else bad—and potentially costly—happens.If you're concerned that the general liability and other business insurance policies you have in place aren’t providing adequate coverage for your company, you might consider adding small business umbrella insurance to the mix. Small business umbrella insurance is like insurance on overdrive. It goes above and beyond in protecting your company from potential liabilities that could cost you.

What is Umbrella Insurance for Business? 

You may already have general liability coverage or other types of business insurance for your company. But while these policies may cover costs in the event that you’re sued—like medical bills, damage to others’ property, and/or legal expenses. But those policies place limits on how much they’ll pay. A small business umbrella insurance policy provides additional coverage for these types of expenses. It pays for potential shortfalls in their coverage.For example, let’s say you have a commercial auto policy and one of your employees totals a company vehicle. You have a policy that will pay 70% of the value of the car. That means that you’ll have to pay for the remaining 30% to replace the vehicle. If you're still paying your small business auto loan, you may not be able to afford to continue to pay it and replace the vehicle.  Business umbrella insurance could fill in the gap between what your commercial auto policy pays and the total cost of replacing the vehicle. That could save you the money you would otherwise have had to contribute to replacing that company car.

When Do Small Businesses Need Umbrella Coverage?

Small business umbrella insurance may not be necessary for many businesses. But if yours has a high net worth or is otherwise at risk of being sued, small business umbrella insurance may be worth considering.Ask yourself how your business would cover expenses beyond what your liability policy would pay for if your company were sued, someone got injured because of your business, or you or your employees damaged a client’s property. If you can afford to cover what could be thousands of dollars (or more) in expenses, you might not need the coverage. But if you want the peace of mind of knowing that you won’t have to dip into your savings if the worst happens, you might benefit from an umbrella policy.Recommended: What Is Business Public Liability Insurance?

What Does Umbrella Insurance Cover?

Naturally, before you invest, you’ll want to know that umbrella insurance for small business owners will provide the coverage you need.Umbrella insurance can stretch the limits of coverage for policies you already carry, like general liability and commercial auto insurance. That's even true, in some cases, if you have those policies with a company other than the one you have your small business umbrella policy with.Your umbrella policy can potentially cover several expenses, depending on what’s specified in the policy.  If someone is injured at your place of business and decides to sue you, this policy could help cover medical bills and legal costs. If you or an employee damages a customer’s property, the policy could help pay to repair or replace that property. If your business is sued for other reasons, umbrella insurance may help cover your legal costs and court fees, as well as judgments and settlements.An umbrella insurance policy doesn’t cover all claims or extend all types of policies. For example, take commercial property insurance. If your business property is damaged by a fire, the umbrella policy would not extend coverage.It’s also important to bear in mind that umbrella insurance policies also come with specific limits defined in the policy. 

What Does Small Business Umbrella Insurance Cost?

Small business umbrella insurance costs probably will (and should) factor into your decision about purchasing such a policy. That’s especially true if you have an eye on your company’s small business accounting and budget.On average, small businesses pay $75 a month for small business umbrella coverage. This, however, will vary, depending on your industry and how much coverage you choose. Businesses in high-risk industries (those with a higher likelihood of injury happening or of being sued) will likely pay more for a policy. Businesses working in building design, for example, pay on average $133 a month, while those in personal care pay just $40 a month on average.Keep in mind that this cost for business umbrella insurance is in addition to your monthly or annual premiums for other business insurance. And you must have, at a minimum, general liability coverage to qualify for an umbrella policy.By way of comparison, general liability coverage runs on average $42 per month, and a commercial auto policy costs about $142 a month (depending on how many vehicles you use in your business). 

Consider These Liability Risks

Now let’s look at a few liability risks to help illustrate how having umbrella business insurance might pay off.Let’s say that you’re a business consultant and a client company sues you because it doesn’t feel you delivered what it asked for. Whether you did or not, you find yourself embroiled in a lawsuit. Your general liability coverage pays for some of the attorney fees and court costs, but not all. How will you pay for the rest? To take another example, what would you do if you’re a contractor and a drunken employee wrecks the site you’ve been working on for weeks? Can you afford to pay for that property damage out of pocket?Or maybe a customer slips and falls in your store and ends up with serious, long-term medical issues. Your general liability caps out but the customer still has ongoing medical bills. Even paying them over time could break your business.In any of these situations, ask yourself how you’d pay for expenses like these? Even if you have the cash in your bank account, covering them could seriously impact your bottom line and your ability to pay for your business expenses. Your business might not survive the damage.You might consider applying for small business loans, but many limit what you can use the funds for. Paying for legal expenses or a customer’s medical bills might not be permitted.This is where a small business umbrella policy can benefit your company. It helps ensure that your business doesn’t suffer because of an incident that your existing insurance policies don’t fully cover. Yes, umbrella coverage costs money. But, should any of these risks materialize, you’ll have peace of mind, knowing that you may not have to dip into savings to pay for the expenses out of pocket. What that’s worth is something that only you can determine.

The Takeaway

Having umbrella insurance coverage for small businesses can provide additional protection on top of what you’ve already got. If you’re in a risky industry, if you worry about being sued, or if you have a high net worth, it may be beneficial to have that extended coverage.Umbrella insurance coverage can help prevent some unforeseen costs to your business. But lawsuits and accidents aren’t the only expenses you’ll have. If you have a sudden opportunity to acquire a competitor or get a deal on new machinery, you may need funds quickly. Lantern Credit can help. By filling out one simple form, you can receive offers from multiple lenders in our network to compare and contrast.

Frequently Asked Questions

Is it worth having an umbrella policy?
What does an umbrella policy cover?
Does my personal umbrella policy cover my business?
Can I get a stand-alone umbrella policy?

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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