Umbrella liability insurance: Overview, definition, and example
What is umbrella liability insurance?
Umbrella liability insurance is an extra layer of coverage that goes beyond the limits of your standard insurance policies, such as general liability or auto insurance. It provides additional protection in case you are held responsible for claims that exceed the coverage limits of your primary policies. This can include expenses related to legal fees, medical costs, or damages in the event of an accident or incident where you are found liable.
In simpler terms, umbrella liability insurance is like a safety net that gives you extra protection when the coverage from your regular insurance runs out.
Why is umbrella liability insurance important?
Umbrella liability insurance is important because it helps protect your business (or personal assets) from major financial losses due to lawsuits or unexpected incidents. Standard insurance policies may not provide enough coverage for large claims, and without umbrella coverage, you could be forced to pay out-of-pocket for expenses that exceed those limits.
For SMB owners, this type of insurance is especially valuable for providing peace of mind in the event of a costly legal dispute or accident, ensuring that your business can recover without facing severe financial hardship. It’s also relatively affordable compared to the amount of coverage it provides, making it a cost-effective way to safeguard your business and assets.
Understanding umbrella liability insurance through an example
Imagine you run a small manufacturing business, and one of your products causes harm to a customer. Your general liability insurance covers up to $500,000 in damages, but the customer’s medical bills and legal fees total $800,000. Without umbrella liability insurance, your business would need to pay the remaining $300,000 out of pocket. However, if you have umbrella liability insurance, it would cover the additional $300,000, protecting your business from a significant financial loss.
This extra coverage can also apply to other risks, such as accidents involving company vehicles or injuries occurring on your property.
Example of an umbrella liability insurance clause
Here’s an example of what an umbrella liability insurance clause might look like in a contract:
“The Company shall maintain umbrella liability insurance coverage with a minimum limit of $5,000,000, providing additional coverage beyond the limits of the Company’s general liability, auto, and property insurance policies. The umbrella policy will cover claims for bodily injury, property damage, and legal expenses exceeding the limits of primary policies.”
Conclusion
Umbrella liability insurance is a smart way for businesses to ensure they are fully protected in case of major claims or accidents that exceed the limits of their standard insurance policies. For SMB owners, this coverage offers an affordable way to safeguard your business against unexpected costs, such as legal fees or large settlements. Having umbrella insurance gives you the extra protection you need to keep your business secure and to protect your assets in case of unforeseen circumstances.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.