I recently switched my personal car insurance, and about two months after signing up my agent sent me an advert in the mail about buying a personal umbrella policy. There were a lot of underlined and capitalized words on the papers that said things like: INSURANCE CLAIMS ARE ALWAYS MORE EXPENSIVE THAN YOU THINK, and THE CAR REPAIRS ARE THE CHEAPEST PART OF AN ACCIDENT IF YOU ARE SUED.
Scary stuff. To be honest, it felt like they were trying to sell me my auto policy all over again. I mean, other than the fact that it is a legal requirement in my state, the reasons I bought a personal auto policy is that I know car accidents can be very expensive, and I know that the chance of being sued is high if I have no coverage, and I want to feel safe driving around with the knowledge that I am covered.
And yet, this piece of paper I got in the mail seemed to be saying YOU ARE DANGEROUSLY VULNERABLE. What? Really? Then what the heck is my auto policy for?
The reality is that I probably don’t need umbrella coverage because my car is not particularly valuable. But does that go for all umbrella coverage? Is umbrella just a scam by insurance companies to get you to pay more?
Far from it. In my case, the umbrella policy wasn’t necessary, but for certain small businesses, an umbrella liability policy can be the difference between staying in business after a big accident, or going out of business. As I see it, there are two key values to an umbrella policy.
First, if the nature of your business is high-risk -- perhaps you consult about valuable business assets, or your employees do dangerous work -- then your regular policy could run out of money in one year, especially if you have two accidents back-to-back. Umbrella policies add an additional layer of protection for your business. If you exceed your policy limits (the maximum your insurance company will pay in one claim or in one year), umbrella will kick in and cover an additional amount up to your umbrella limit.
The second value of umbrella is in its versatility. As a small business, you may have only one insurance policy (probably general liability), or you may have several (general liability, workers’ compensation, professional liability, commercial auto liability, etc.). No matter how many liability policies you have, a single umbrella policy can back up any of them. So if you exceed the limits of your professional liability policy one year, your umbrella coverage will protect you. Then, if you exceed the limits of your commercial auto policy the next year, that same umbrella policy can protect you in this circumstance too.
Umbrella coverage is often very cheap compared to other policies, because it only gets used if your other policies are exceeded. Essentially, it is insurance for your insurance. When an accident or series of accidents and lawsuits pulls your business into very large debts, umbrella can be a lifesaver. The more you have invested in your business, and the more you depend on it, the more important additional protection becomes.
So even if you don’t need a personal umbrella policy for your economy class car, you might truly benefit from the security that a commercial umbrella liability policy provides to your small business.