Working in the consulting field may not be especially physically hazardous compared to other industries, but there is still always a risk that your company could be held liable for third-party bodily injury or property damage claims. It’s important to consider coverage that will protect your company from the consequences of these types of claims. Most companies obtain common policies such as commercial general liability insurance (CGL), commercial auto insurance, and employers liability insurance. These policies will provide financial protection if someone is injured or property is damaged in the course of your work. However, there is a possibility that a single very serious incident or multiple claims in one year could overwhelm the limits of your liability policies, leaving you responsible for paying the remaining costs.

Commercial Umbrella Insurance can assist companies in this situation by extending the limits of coverage if the primary liability insurance policy’s limits are exhausted. In addition to increasing the funds available to you in the event of a serious disaster, Commercial Umbrella Insurance can broaden coverage by “dropping down” to cover claims that are excluded from your primary liability policies. If your company is concerned that underlying policies may not provide sufficient coverage, Commercial Umbrella Insurance can provide valuable additional protection.

What is Commercial Umbrella Insurance for consultants?

Commercial Umbrella Insurance is a type of insurance that supplements your primary liability policies if their limits are exceeded. It will provide additional funds to extend the coverage of your commercial general liability policy, commercial auto liability policy, or employers liability insurance policy. It can also provide coverage above more than one underlying liability policy. Since it only kicks in after your underlying insurance policies are exhausted, which rarely happens, Commercial Umbrella Insurance typically enables you to buy a higher level of additional coverage for a lower price than purchasing a higher limit of coverage on your primary policy.

Example:

• A client visits your financial consulting company for a meeting. She slips on a wet floor in your company’s restroom and breaks her arm. Your client is unable to work for several months. She has a high income, and her lawsuit for medical expenses and lost income claims damages of $1.5 million. Your general liability insurance policy has a limit of $1 million. Your Commercial Umbrella Insurance would cover the remaining $500,000.

What does Commercial Umbrella Insurance for consultants cover?

Commercial Umbrella Insurance is designed to extend the limits of your primary liability insurance policies, which means that it usually covers the same perils as the underlying policies. It’s possible that your company could experience a number of claims in the same year or be held liable for one particularly large settlement. If that happens, the costs may exceed the maximum amount your underlying insurance policy will cover. After the underlying policy reaches its limit, Commercial Umbrella Insurance can provide additional financial protection. It will cover the remaining costs up to its limit of insurance, and it can also cover some or all of your legal defense fees if you’re involved in a lawsuit.

Example:

• One of the consultants at your management consulting firm drives a company car to a meeting with a client. On the way, he becomes distracted and runs a red light, colliding with another car. The other car’s driver suffers severe, long-lasting injuries and sues for medical expenses and damages of $3 million. Your commercial auto liability policy has a limit of $1 million. Your Commercial Umbrella Insurance would pay for the remaining $2 million.

It’s important to be aware that some Commercial Umbrella policies have additional exclusions that aren’t part of the underlying insurance. Make sure to confer with your insurer to understand what is covered.

Drop-down Coverage

Drop-down coverage is a portion of Commercial Umbrella Insurance that provides coverage for perils that may not be covered by underlying liability policies. It’s called “drop-down” coverage because it drops down to cover a claim from the first dollar of loss, rather than kicking in after the underlying coverage has been exhausted. It’s important to note that this benefit typically requires a self-insured retention (SIR).

Example:

• One of your consultants travels to Canada for work purposes. She rents a car and is driving to a client’s office when she accidentally rear-ends another vehicle. Your commercial auto insurance does not cover incidents that take place outside the U.S., so your Commercial Umbrella Insurance would step in to provide coverage.

Who needs Commercial Umbrella Insurance?

It’s necessary to carefully evaluate your company’s level of risk when deciding whether Commercial Umbrella Insurance is a good choice for your consulting firm. If you run a smaller, independent firm that does most work remotely, you may not need the additional coverage that this type of policy provides. However, your company may have additional risk factors that make Commercial Umbrella Insurance a smart choice, such as working with high-income clients or traveling frequently to meet at clients’ offices. It might be a good idea to consider Commercial Umbrella Insurance if the following factors apply to your consulting firm:

• You have high-income clients. If your clients are injured, they could sue for lost income or damages, which could be costly.
• Your clients contractually require you to have higher liability insurance limits than your underlying policies.
• Your company owns significant assets that you wish to protect.
• Your company owns vehicles. Auto liability claims are common and can be very expensive.
• Your employees are frequently traveling and working on-site at clients’ offices for extended periods of time. More time spent at clients’ offices means a higher chance that your employees may damage client property.

What’s the difference between Commercial Umbrella Insurance and excess liability insurance?

Commercial Umbrella Insurance and excess liability insurance both raise the limits of your underlying liability insurance policies, and they are often referred to interchangeably, so it’s easy to confuse these types of insurance. Although the exact definition of each coverage can vary depending on the insurer, there are a few commonly accepted differences between the two. The main distinction is that Commercial Umbrella Insurance may provide broader coverage by dropping down to cover perils that are not covered by underlying insurance policies, as well as extending coverage limits. This wider range of additional coverage can help fill gaps in your insurance. In contrast, excess liability policies are narrower; they only extend the financial limits of underlying policies and do not provide any additional coverage.

Does Commercial Umbrella Insurance have a deductible?

Commercial Umbrella Insurance does not have a deductible, but it usually requires a self-insured retention for drop-down coverage claims. Since drop-down coverage is not covered by an underlying policy, your umbrella insurer may require you to pay a portion of the claim’s costs before it begins coverage. The SIR differs from a deductible in that it is not typically subtracted from your limits of insurance. For example, if your limit of insurance is $1 million and your SIR is $10,000, you would still have $1 million of coverage remaining after paying the SIR.

How much does Commercial Umbrella Insurance cost?

The cost of Commercial Umbrella Insurance varies based on your industry, your business’s risk level, and the amount of coverage you wish to purchase. Small businesses may pay premiums ranging between $750 and $1,500 per year. Raising the limits of your insurance by adding a Commercial Umbrella policy is typically cheaper than raising the limits of your underlying policies.

Final Word

Commercial Umbrella Insurance can be a good choice if your company wants to make sure it’s protected above the limits of primary liability policies. In addition to extending the limits of underlying policies, it can also fill gaps in coverage by covering liability claims that aren’t covered by any other policies. For companies with an elevated level of risk for lawsuits, Commercial Umbrella Insurance can provide an extra layer of coverage at more cost-effective prices than purchasing a higher limit on your primary policies. This can give your company peace of mind that multiple claims in one year or one very large claim would not be financially devastating.