Business Insurance: What Is An Umbrella Policy?

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November 23rd, 2009

Businesses use several different types of insurance policies to protect them from significant financial loss. Sometimes, though, an event can cost you more than your business insurance is willing to cover. When this happens, you need an umbrella policy that will pay for the rest of the damages.

Umbrella Policies Offer Additional Liability Insurance

You already have liability insurance for your business, but what happens if someone is seriously injured and they sue you for more than your liability policy covers? For instance, an employee of yours is driving the company car and has an accident that seriously disables another person. If the court awards that person money for pain and suffering, medical treatments and lost wages, then you could owe him or her millions of dollars. This probably exceeds the amount that your liability insurance will pay. An umbrella policy, however, will protect your from liability by covering the amount that your liability insurance will not pay.

Umbrella Policies Offer Additional Property Insurance

All businesses need insurance policies that will pay them to replace merchandise, computers, furniture and other equipment if someone robs them or a fire, storm or similar event destroys them. Likewise, businesses use insurance policies that pay for repairs to the building under these circumstances. While this can save you from going out of business, it might not be enough to fully protect you. Your property insurance policy has a cap on the amount of money that the provider will pay you. Anything over that cap is your responsibility. If a storm wiped out your building and everything in the store, you probably do not have enough insurance to replace everything. This is when an umbrella policy kicks in, offering you addition insurance to cover the replacement costs of your building and other property.

Umbrella Policies Offer Large Monetary Benefits

An umbrella policy can cover you for several million dollars over what your other insurance policies cover. These umbrellas are made to protect you from hurricanes, not rainy days. The costs of these policies, however, are surprisingly affordable considering the large amounts that they can pay out. Few businesses actually need to use their umbrella policies because their other insurance plans cover normal losses. This helps insurance providers offer low premiums. Chances are that your business will never need to use your umbrella policy. If you don’t have one when you need it, though, you could lose your whole business.