Commercial Umbrella Liability–What Limit Should I carry?

Umbrellas and Excess policies are important because they give you additional (higher) limits on multiple policies by purchasing one policy.  Most cover General Liability, Automobile, and the Employers’ Liability part of Workers’ Compensation Insurance. Umbrellas are written on their own form and often contain broader coverage than their underlying policies plus they offer drop down coverage for these situations.  Excess policies follow the underlying policies and are only as broad as the polices they encompass.

I have been asked several times what Umbrella Limit a company should carry? While there is no definitive answer to this question, companies should begin their analysis by using the net worth of their company as a guideline.  For example, the more you have, the more you should carry. Companies with substantial property values that have appreciated over time should look to  more than just their financial statements to determine asset values. They should also look at the current market value of their properties. 

We all hear of large losses that put companies out of business, where there could not have been enough coverage purchased to cover the loss. I have personally seen accidents that exceeded $2,000.000 but I have not seen anything over $5,000,000.   This is why I am a proponent of dividing your companies into separate entities if it makes sense to do so. Whether or not you do this, keep in mind that the higher limits you obtain, the less each incremental layer will add to your premium. For example, let’s say the first $1,000,000 of the umbrella  costs $2,000.  The next $1,000,000 might cost $1,000 and the 3rd $1,000,000 might cost $500 for a total premium of $3,500 for a $3,000,000 umbrella.

Whatever you do, take the time to properly protect your company.  You spent a lot of time building your business, so spend the time to make sure you get to keep it.