Last Updated: February 16, 2024, 11:46 am by TRUiC Team

Small Business Umbrella Insurance

Small business umbrella insurance provides an additional layer of protection when other coverage limits have been met. When unexpected and expensive claims arise, an umbrella policy can absorb the remaining expenses and safeguard your business from financial strain.

Our guide will help you understand what small business umbrella insurance covers, as well as the best coverage options for your business.

Recommended: Next Insurance is dedicated to matching small businesses with the right umbrella policy at the best price.

Piggy bank with an umbrella over it.

What Is Small Business Umbrella Insurance?

When a claim reaches the limit on an existing insurance policy (such as general liability, commercial auto, or employer’s liability insurance), umbrella insurance comes in to provide an additional layer of liability coverage.

Umbrella insurance isn’t a standalone form of liability protection. Instead, it functions like a safety net, helping to ensure you and your business won’t be paying for excess liability out-of-pocket.

Commercial umbrella insurance can help cover costs like legal expenses, medical bills, damage to someone else’s property, and settlements.

For example, imagine your business is sued for $1.5 million, but your general liability policy only covers $1 million. Without umbrella insurance, you and your business are left to cover the remaining costs on your own. With umbrella insurance, the remaining $500,000 would be covered, allowing your business to continue without financial strain.

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What Is Covered by Small Business Umbrella Insurance?

Umbrella insurance covers expenses that exceed your current limit of protection. Some examples of what umbrella insurance can provide coverage for include:

  • Third-party bodily injury
  • Employee injury lawsuits
  • Third-party property damage 
  • Car accident liability 

It is not uncommon for claims — especially third-party bodily injury — to escalate and become more costly than initially anticipated. 

Example: If your business has a physical location and experiences foot traffic, there is a higher risk for third-party bodily injury. Having a business umbrella insurance policy will help protect you should a trip-and-fall or heavy equipment accident arise.

If your business has a company vehicle, having an umbrella insurance policy will provide important coverage. 

Example: An employee hits another car in a company vehicle, resulting in multiple vehicles crashing. The other drivers sue your business and are awarded $4 million. Your commercial auto insurance policy only covers $2 million. With an adequate umbrella policy, the remaining $2 million will be covered, and your business will be protected.

Umbrella insurance can also help with legal costs associated with personal and advertising injury claims. Personal and advertising injuries include slander, libel, invasion of privacy, and copyright claims. Even if your business is ultimately found not at fault, the legal fees for these claims can be significant. Commercial umbrella coverage will help to ensure legal defense costs do not put your business at financial risk. 

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Recommended: Visit our Low-Cost Insurance Review to find the ideal balance of affordability and coverage.

What Isn’t Covered by Business Umbrella Insurance?

While commercial umbrella insurance can provide extended coverage for third-party property damage, it doesn’t cover damage done to your own business property. For example, if your business equipment is significantly damaged by a fire and the repair costs exceed the amount covered by your commercial property claim, umbrella insurance won’t help with the additional expenses. 

General Liability vs. Commercial Umbrella Insurance

General liability and umbrella coverage provide different forms of protection for your business. The most common type of business insurance, general liability insurance, covers the basic needs of most businesses. 

General liability insurance protects a business from claims occurring due to bodily injury, personal injury, or property damage (your property as well as others). Other risks typically covered by these policies include medical payments (resulting from accidents that happen on your premises), personal and advertising injuries, and legal defense. 

To learn more about general liability insurance, check out our General Liability Insurance guide.

Do I Need Umbrella Insurance for My Small Business?

Now that you know what umbrella insurance is, you can decide if your small business would benefit from the additional coverage. We recommend reviewing our guide to business insurance to understand the differences in types of coverage and providers of insurance, as well as discover solutions specific to your state or industry. 

If you’re unsure about whether or not your business needs commercial umbrella insurance, consider the different claims your business is likely to deal with. Would your existing policy be able to cover all costs associated with these claims? If your business would need to close the gap on requirements above $2 million, has high liability risks, or needs more liability protection across multiple policies, umbrella insurance is a good idea. 

Frequent customer interaction, working on someone else’s property, and working with heavy machinery or in warehouses are all examples of high-liability risk scenarios. If your business has a physical location with foot traffic, there is a considerable risk of bodily injury. Work performed on a third-party location is at risk for a variety of accidents, such as physical damage to property and vehicles. 

When employees work with heavy equipment, the risk for bodily injury, as well as property damage, increases. Contract requirements (typically with vendors and landlords) will occasionally require a commercial umbrella policy, as well. 

Knowing that these situations can become costly quickly, an umbrella insurance policy is a great way to bolster your coverage and strengthen your business's financial security.

Small Business Insurance FAQ

Small businesses that work on other people’s properties, interact with clients in person, and work with heavy or dangerous equipment are all strong candidates for an Umbrella Insurance policy. If your business would need to close the gap on requirements above $2 million, has high liability risks, or needs more liability protection across multiple policies, umbrella insurance is a good idea.

Typically, a business umbrella policy will cover professional liability insurance. Also known as errors and omissions (E&O) insurance, personal liability insurance is a policy that is meant to protect professionals in the workplace. 

Expert advice given to a client by you or your employees may not always lead to the desired result. This can leave you open to liabilities if the client is financially damaged and blames your company.

The amount of umbrella coverage you need will depend on the specifics of your business and the types of risks that are common in your business’s industry. Umbrella policies are typically offered in increments of $1 million and range from $1 million to $15 million.

Directors and officers insurance (D&O insurance) covers the cost of legal claims made against a company’s directors and officers by other shareholders, employees, regulators, and other third parties. While an Umbrella policy may help with the legal costs associated with a relevant claim, D&O Insurance is its own type of business insurance. 

Businesses with a higher risk for D&O claims might consider purchasing a separate D&O policy.