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4 Common Misconceptions About Commercial Umbrella Insurance

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Umbrella insurance is one of the most-commonly misunderstood types of insurance. Because it’s a bit difficult to understand and surrounded by myths, too many businesses go without it and regret it later. Let’s take a closer look at what umbrella insurance is, and settle some common misconceptions about it.


MYTH #1: It’s Basically A Bunch of Insurances Combined.

This is the most common misunderstanding about umbrella insurance. It’s not just a mishmash of combined insurance types. It’s actually an extension - additional coverage purchased beyond your existing plans of any kind.

All commercial general liability policies max out at a certain dollar value. If you hit that limit due to an expensive lawsuit, you’ll be on the hook for additional costs unless you have an umbrella policy with a higher coverage level.

Say, for example, that a customer is severely injured on your property when she slips and falls through a glass display case. She sues for $2 million in medical costs, legal fees, and lost wages - and she wins. If your commerical general liability policy maxes out at $1 million and you don’t have an umbrella policy, you’re responsible for the remaining $1 million.

MYTH #2: Your Existing Policy is Plenty of Coverage.

As the example above shows, your existing policy might be enough, or it might not be. It completely depends on the situation.

One thing to keep in mind is that the overall cost of claims in the United States has risen each year in the past decade, no matter the maximums on your existing policies. If you bought a policy 10 years ago that had a $1 million limit, it likely no longer covers the expensive risks your business faces. You’d need an umbrella policy to extend your protection.

Litigation costs for U.S. companies are projected to continue to rise in the coming decade. Legal experts say this is due to a litigious national culture, new regulatory disputes, and additional class action lawsuits made possible by global communication.

MYTH #3: Only Big Businesses Can Afford It.

It’s a persistent myth that umbrella insurance is only for big businesses with deep pockets. But small businesses are just as likely as big businesses to face million-dollar lawsuits. In fact, small businesses may even be larger targets, because people may assume they’ll get a settlement without much argument from a smaller company that can’t handle a legal battle.

In terms of premium cost, umbrella insurance isn’t actually that expensive. It typically adds just 5% to 8% to your premiums. It’s a small price to pay, when you think about the risks involved.


MYTH #4: It’s Extremely Unlikely That You’ll Need to Use It.

This is a myth that leaves insurance agents shaking their heads. All day long, insurance companies handle situations where their customers never thought they’d need to use their insurance. Accidents. Errors. Medical malpractice. Million-dollar lawsuits.

Umbrella insurance might be a lesser-used type of policy, but it can save your business. It covers unforeseen gaps, extends your maximums, and brings peace of mind for your top management. It can also keep your company from going bankrupt, if the worst happens.

So don’t think of it in terms of likelihood; think of it in terms of lifesaving. Can your company spare a million dollars this month? That’s really the question to ask when you’re thinking about umbrella insurance.

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