What is Umbrella Coverage, and Why is it Critical for SMBs? 1

What is Umbrella Coverage, and Why is it Critical for SMBs?

Owning your own business comes with risk: no matter how carefully you plan and no matter how hard you work, unforeseen events, accidents, and costs are bound to occur. And while your primary commercial insurance policy might cover up to $1 million in damages from accidents or lawsuits, that amount does not stretch very far. In today’s economy, a single accident or legal issue could quickly spell disaster for your business’s bottom line.

Fortunately, there’s an affordable solution for protecting your livelihood: umbrella insurance.

What is umbrella insurance?

Essentially, umbrella insurance is extended liability coverage. It can be more cost-effective than raising the limits on existing liability policies. Plus, with umbrella insurance, you can expand your coverage across multiple policies — all under one “umbrella.” For instance, legal expenses are covered under umbrella insurance — an important benefit for small businesses that deal with high-net-worth clients, which can leave them vulnerable to higher lawsuit settlements. This peace of mind can be invaluable to the stability of your business when you’re up against a lawsuit.

Some small business owners make the mistake of thinking umbrella insurance is only for large businesses, but that isn’t the case. Here are three reasons why you should avoid falling into that trap.

Why Umbrella Insurance is Crucial to Small Businesses

  1. Prevention won’t cover you. It’s important to do everything you can to prevent workplace accidents and ensure employees are properly protected and trained. However, no amount of prevention can protect your business from freak accidents or catastrophic events. Despite your best efforts, the unexpected can still happen—resulting in injuries to your customers, vendors, or employees. Given the potential medical costs and legal expenses, these accidents can jeopardize your business’s relationships, reputation, and even viability. And if you’re like many other small businesses, you might not have the money to pay out of pocket and recover from such an event.
  2. Most small businesses are underinsured. According to Tim Hagen, a casualty underwriting strategy leader at Liberty Mutual, many small businesses are unaware of their coverage limits—and how quickly those limits can be met. “If a business-related automobile accident occurs and multiple parties are injured, the total claim can easily go over a million dollars,” he says. Since primary commercial policies don’t generally go higher than $1 million, your small business could be left with a hefty bill.
    This lack of awareness and understanding of their coverage means most small business owners don’t purchase the proper coverage without first experiencing a catastrophe. When disaster strikes, you want to be focused on the safety of your people and the day-to-day details of your business—not worried about how you’re going to afford to cover your expenses.
  3. Accident costs are on the rise. Both medical and legal costs are consistently on the rise, which means that a $1 million commercial policy just doesn’t go as far as it used to. Consider this: if you have a customer who is injured in an accident, the damages could include lifelong care, in addition to the cost of current care. Making those payments would be nearly impossible for most small businesses, causing them to acquire years of debt without the proper coverage.

And small businesses are just as vulnerable to legal repercussions from accidents and workplace incidents as larger businesses. In fact, according to recent data from the U.S. Chamber of Commerce, small business owners pay more than $35 billion per year in out-of-pocket court costs for claims that exceed what their primary insurance covers.

How to Get Umbrella Insurance

The best time to protect your business against unforeseen events, accidents, and legal trouble is before something happens. To get help and learn more, talk to your independent insurance agent, who can look at your specific umbrella coverage needs.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.