Pros and Cons of Excess or Umbrella Policies for Small Businesses

Trying to safeguard your business from unforeseen risks can be a daunting task. Yet, in many instances wading through the various types of insurance can be just as nerve-wrecking. These are the central issues behind excess or umbrella insurance policies. Excess or umbrella policies are in essence the broadest form of insurance protection available. However, there are things that a business owner should consider before purchasing excess coverage.

The most obvious advantage is the broad extent of coverage. In today’s risky world, the terms and conditions of regular commercial policies are well-defined and may exclude any number of events such as “Acts of God” or terrorism. Umbrella policies usually cover much more than the typical auto or general liability coverage. Yet, if you are shopping for umbrella policies and the terms of coverage are not broader than your current policies, you should not be alarmed. However, you should shop around.

Umbrella or excess policies typically do not replace your current insurance coverage. It is important for business owners to understand this, before they purchase umbrella or excess insurance for the wrong reason. Instead, these policies are used to supplement your current policy and usually kick in after you have reached the coverage limit for a particular policy. So, if your business is hit with a liability claim that would end up costing it $3,000,000 and your general liability policy limit is $2,000,000, your umbrella policy would cover the final $1,000,000.

You can also get much more for much less. Umbrella policies are inexpensive when you consider the financial downfall from which your business is protected. The monthly premium for typical policies vary depending on the nature of your business, its size, the type of risks that your business faces, and your implemented ways to reduce these risk. The disadvantage here would be that this cost must be added to your current insurance premium budget. Whether or not you can afford this coverage will depend on the premium and how well your business is doing.

Umbrella policies for businesses can be a tad bit more work than regular policies. Depending on your financial ability and the size of your organization, you may find yourself bidding out this service every year or every couple of years to find the best deals. Companies try this tactic in order to get a lower premium. Although your broker will do the majority of the hard work, you will be the one to compile your renewal data and loss statistics. Annual renewals can require gathering information of your business as well. Yet, the amount of information needed will revolve around the different goods, services, or practices that make up your business’ offerings. Excess carriers must be informed of potential losses. Typically with regular insurance, the claim may be filed directly with your insurance adjuster. Excess carriers are mainly underwriters that process the large claims. However, since your regular commercial kicks in first, you will need to notify the carrier once there is a potential for a large loss.

For a business owner, there are few reasons not to purchase excess or umbrella policies. With the amount of protection that you will receive the pros will always out number the cons. The most important thing to remember is to shop around and talk to other small business owners. You want to make sure you are getting the best bang for your buck, because as a small business, the one thing you can’t afford is to waste money.

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