Commercial Umbrella Insurance For Contractors

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Why Get Umbrella Liability Insurance


If you own a contracting business, you should explore the benefits of obtaining a Commercial Umbrella Insurance policy for it. At Farmer Brown, we can provide expert advice based on our years of experience.

Below you will find a simple and comprehensive explanation of Umbrella Insurance for all types of contractors. There will also be several PRO TIPS gained from our many years of dealing with contractors. So keep reading to learn these secrets.

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What Is Commercial Umbrella Insurance For Contractors?

An umbrella policy is an additional protection selected apart from other insurance policies to ensure one’s safety and security. An extra measure is required if you want to protect yourself from unexpected damages and losses.

infographic of Commercial Umbrella is a specialized insurance that covers your contracting business in the event of a catastrophic loss

Commercial Umbrella Insurance is specialized insurance that covers your contracting business in the case of a catastrophic loss caused by your activities. If your business is involved in a claim that exceeds the policy liability limits of your general liability policy, commercial auto policy, or commercial property liability policy, having umbrella insurance can provide additional coverage. Since the standard limit of most liability policies is generally $1 million, it does not take much imagination to think up a situation where an accident can cause more than $1 million in damages.

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Pro Tip

Always read your insurance policy: This is essential to know and understand your coverage. You need to know how broad your general liability insurance policy is, as well as your umbrella policy, and precisely what they cover. Most importantly, you need to ensure that the policy covers the type of work that you do. Don’t be afraid to ask questions; part of your insurer’s job is to help you understand.

What Does Commercial Umbrella Liability Insurance Cover

Commercial Umbrella insurance provides an additional layer of protection by covering the costs that exceed your other liability coverage limits. In a nutshell, commercial umbrella insurance supplements your other liability coverage by taking over when your liability coverage reaches its limits.

infographic of commercial umbrella insurance supplements your other liability coverages

It gives you extra liability coverage on top of what you have from previous liability insurance, such as your general liability, commercial auto liability, and other types of liability insurance. An umbrella policy on its own will do you no good; it requires an underlying liability insurance policy because the purpose is to increase the coverage you already have.

With your general liability coverage, you may be undertaking a project for which you are adequately protected, but what if something catastrophic happens? What will you do? What if your general liability insurance isn’t sufficient to cover everything? That is where your umbrella insurance coverage will come in handy.

Infographic of That is where your umbrella insurance coverage will come in handy
It doesn’t mean that Commercial Umbrella coverage is only for when your business requires additional coverage but also when your business faces a claim that is more than your underlying policy, which includes:

  • General Liability Claims:

    This claim will come in handy as it will protect you in cases of miscellaneous occurrences while on the project site if the damage surpasses your coverage limit.

  • Employer Liability Claims:

    Employer liability will protect you against lawsuits linked to workers’ compensation. If a worker is injured on the job, their workers’ compensation benefits will compensate them for any loss of earnings and medical expenses. However, if in the event the employee decides to file a lawsuit for something else and your employer’s liability is not sufficient, can your umbrella insurance cover the missing amount? The answer is yes, this policy will kick in and protect you.

  • Commercial Auto Claims:

    Depending on what types of services you offer as a contractor, you may have business vehicles. You must be signed up for commercial auto insurance for these vehicles. However, suppose one of your vehicles is in an accident that involves multiple people and incurs serious injuries or even death. In that case, your commercial auto coverage may not be sufficient to cover everything. Again, your umbrella insurance coverage can kick in and provide the missing amount required to do everything.

Remember, attorneys fees are covered in most policies. There are two different kinds of coverage for attorney’s fees:

  • Inside the policy limits:

    If the costs are inside the policy limits, they are part of the policy limit. For example, your policy is an “Inside Policy Limits,” and the policy limit is $1 million; if you have a claim of $800,000 with attorney’s fees of $300,000, you will be on the hook for $100,000.

  • Outside the policy limits:

    Using the same example above, you would not be on the hook for anything if your policy treated attorney’s fees as outside the limit—clearly a huge difference.

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Pro Tip

Consult your insurance provider first: Before you settle a lawsuit or any type of claim, you should always consult your insurance provider first. They can help you with your claim, conduct their own investigation as to the causes, and may even help you negotiate a lower settlement.

In many cases, contractors put themselves at risk either by not reading their insurance policy correctly or by not contacting their insurance companies and trying to settle claims to avoid further problems in case of a lawsuit or other incident. These people sometimes use their umbrella liability policy when there may not even be a need.

How Much Does Commercial Umbrella Insurance Cost

There is an extensive range of costs and factors influencing the price of umbrella insurance policies. The following are the main factors:

Number of Underlying Policies.

The more policies that your umbrella insurance will cover, the more it drives up the cost. That’s because of the increased risk of loss with more policies.

Type of Business.

The riskier the business is, the higher the cost. For example, a steel erection company would have a much higher rate than a landscaping company. That happens because there is a greater probability of a catastrophic accident with a steel erection company than with a landscaping business.

Number of Employees.

The more employees you have working, the more the chances of having claims.

Amount of Revenue.

The more business you do, the higher the likelihood of claims, no matter how careful you are.

Location of Business.

Your location makes a big difference. The rates for a New York roofing company that does work in the 5 Boroughs of New York can be 2 to 3 times what the same business would pay if they were located in Texas. Commercial Umbrella Insurance Policies get sold in coverage amounts of $1 million.

An umbrella policy may cost $2,500 per year and above per million dollars of coverage for riskier businesses; those who fall into this category tick off all the boxes on the high-risk side of the price-increasing factors. On The low end of the risk spectrum, commercial umbrella insurance costs can be as little as $500 a year per million dollars of coverage.

Infographic of Average Price for Umbrella Insurance

Since there is such a significant difference between the high and low ends of cost, the average amount for umbrella insurance is about $1,200 a year for a $1 million policy. However, many construction businesses will pay less, with the premium falling closer to $900 a year per $1 million in coverage. Coverage amounts usually range between $2 and $5 million. In certain situations, larger amounts may be needed, and these policies can also be obtained.

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Pro Tip

In many instances, it is cheaper to purchase a Commercial Umbrella Policy to increase coverage rather than paying to increase the limit on an underlying policy. You will have the added benefit of increased coverage over all your policies. For example, a job may require you to have $2 million in commercial auto coverage. Your current policy limit is $1 million. It may be a better option to purchase a $1 million umbrella insurance than just increasing your auto insurance.

Factors to Consider When Getting an Umbrella Policy

There are certain factors you need to consider when buying umbrella insurance. Checking details of any umbrella policy you want to purchase is a wise thing to do to know what you are getting involved in. For example, umbrella policies’ protection is typically constant, unlike other insurance policies that do not offer continuous compensation. Below are other things you should keep in mind:

  • You should not go lower than what is required of you when using additional liability coverage. If you limit the amount the other insurance policy is to pay, you will be the one to complete it from your pocket because the umbrella policy will only pick up the rest when the underlying policy has reached its limit. The gap must be closed before the umbrella policy will take over.
  • Let’s say you have an umbrella insurance policy with an underlying auto policy, and you no longer have the auto policy; you can still keep the umbrella policy by buying a non-owner car insurance policy with 500 CSL limits (combined single limits).
  • Under worker’s compensation, an umbrella policy usually excludes liability, especially if the act was intentional by you or your family members. When an underlying policy excludes any loss and there is no additional liability coverage, then there is no coverage at all. In this case, you will be personally responsible for any damage and losses incurred.

Infographic of Umbrella Policy will cover any severe

As a general contractor, if you have an umbrella policy, it will cover any severe damage or loss you may face when involved in your projects. It is also advisable for plumbers, roofers, and other sub-contractors to have this umbrella policy.

Difference Between Excess Liability Insurance vs Umbrella Policy

Excess Liability and umbrella policies are often used interchangeably. However, this actually should not be done. It is crucial to realize that Excess Liability and Commercial Umbrella Insurance, while they add additional layers of protection, do not offer the same coverage. Both Excess and Umbrella extend coverage when the underlying policy liability limits have been reached. Keep reading to find out what makes them different.

Infographic of extend cover when the liability limits of the underlying policy are reached

  • Excess Liability Insurance: This provides additional coverage after an underlying liability policy has reached its limit. It covers any claims that would have been covered in the underlying policy. However, it excludes any claims the underlying policy did not cover. It only extends the policy limits to that specific policy, not to any other liability policies.
  • Commercial Umbrella Insurance:This is a type of excess insurance. Like excess liability insurance, it covers additional liability that exceeds your underlying policy. The difference is that it can sometimes cover claims the underlying policy would not cover. It also extends coverage to all of your eligible liability policies. It is important to note that the coverage terms may differ from the underlying policy.

Ensure your insurance company is legally protected:

This will help you in the long run with claims and anything that can go wrong legally. It is common that, in many cases, people will want to settle lawsuits and other claims as soon as possible to avoid further problems. However, to ensure that you do not lose in the long run, you should always consult with a trustworthy insurer.

If you have any questions, need help, or want to purchase commercial umbrella insurance, be sure to fill out a quote! We will contact you within one business day.

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