Your Existing Liability Insurance Policy
A commercial general liability insurance policy is a means for you, as an entrepreneur, to transfer risk from your business to the insurance company. This risk transfer incurs a cost, but since litigation seems to be a default reaction for so many injured parties today, the cost is well worth it.
Without commercial general liability insurance, you're assuming all of the risk on behalf of your business. If your business is successfully sued, then you'll have to find a way to pay the damages awarded to the plaintiff.
What Is Umbrella Insurance?
It's likely that your commercial general liability insurance policy has a hard stop at $1 million of coverage. This means that you can expect your policy to pay out damages and attorney fees in an amount not exceeding $1 million.
However, some lawsuits end up costing more than $1 million. Therefore, you are still assuming a great deal of risk if you only have a commercial general liability insurance policy.
If your business is successfully sued for $1.5 million, for example, and you only have commercial general liability insurance, then your business will have to scrape together the extra half a million dollars in damages awarded to the plaintiff.
However, if you have an umbrella policy, then that insurance coverage would be responsible for the additional $500,000 in damages.
Since this is an era when it's not uncommon to hear about companies getting sued for millions because patrons spilled hot coffee on their laps, it's a good idea to protect your business as much as possible against the threat of lawsuits.
That's why umbrella insurance is so important.