Umbrella Insurance

What Does Umbrella Insurance Cost?

Umbrella policy limits start at $1 million. Most small businesses can get this limit for under $1,000 per year. There are numerous factors, of course, that may affect your rate. The biggest three factors are as follows:

• Industry.
• Preferred limit.
• Prior claims.

High-risk industries like construction will usually pay higher rates than lower-risk industries such as retail. While an umbrella policy always starts at $1 million, it can be increased, and many small businesses do increase to $2 million or even $3 or $4 million. Rates don’t change too much at $2 million, but when you jump to $3 million there is a noticeable increase in cost. Depending on whether you go through the same carrier you have other policies through, you may be rated on your claims and credit history as well.

Agents at The Insurance Shop know our carriers well and know what they are looking for on applications. We can talk you through the whole process from purchasing your underlying business insurance to shopping for your umbrella coverage for that extra bit of cushion to protect your personal assets.

What are Common Umbrella Claims?

The most costly property and general liability claims for small businesses¹, and the average cost per claim are as follows:

1. Reputation harm (including financial damages from libel, slander, defaming products or services, or violating privacy).
• Average claim cost: $50,000.
2. Vehicle accident (accidents involving employees using personal vehicles for business purposes).
• Average claim cost: $45,000.
3. Fire damage.
• Average claim cost: $35,000.
4. Product liability.
• Average claim cost: $35,000.
5. Customer injury or property damage.
• Average claim cost: $30,000.

¹Claims data provided by The Hartford

How Can I Reduce my Risk?

Avoiding general liability risks in your business starts from the ground-up, literally. If your business is open to any third-party, that is anyone who is not an employee, then you need to assure that it is a safe and accessible space. Start with the floor, is it level? Are there tears, ripples or holes in the carpet? These are all examples of risks that could cause a person to trip and fall on your premises. With some basic common sense and a safety-first mindset, you can mitigate a lot of liability risk. Here are some tips to get started.

• Create safety checklists, then follow them!
• Perform regular inspections, do daily, weekly and/or monthly inspections of property to assure it is in top condition.
• Provide appropriate supervision, assure employees are following safety procedures, and provide safety training.

Other liability risks, such as product liabilities, can be mitigated through similar tactics. In the context of umbrella insurance, however, it’s the risk of reaching policy limits that would drive a business owner to purchase additional coverage. The only known ways to reduce the risk of reaching your limits are 1) buy policies with high limits from the beginning or 2) use good liability risk mitigating strategies like the three described above to prevent lawsuits.

Frequently Asked Questions

1. Is umbrella insurance tax deductible?

Commercial umbrella insurance, that supports other business liability policies, is tax deductible. There are some grey areas with umbrella insurance as it is only defined as commercial and personal through insurance companies, not the IRS. So, while it is always best to consult with a tax agent, as long as your umbrella policy is working on top of your business policies, it should be tax deductible.

2. How much umbrella insurance should I carry?

Your insurance agent is the best resource for helping you figure this out. When we help choose coverage limits we consider the following three factors:

• Your risks.
• Total business assets.
• Potential loss of future income.
3. Does umbrella insurance cover professional liability?

Yes, an umbrella policy can cover any type of liability, provided there is an underlying policy in place.