Business owners spend a lot of time thinking about growth—more customers, larger contracts, additional employees, new vehicles or perhaps another location.

But as a business grows, its liability exposure can grow too.

Your commercial insurance policies generally provide liability protection subject to specific limits. A question worth revisiting periodically is:

What happens if a serious liability claim exceeds those limits?

That’s where commercial umbrella and excess liability insurance may become part of the conversation.

Your Business May Be Different Than It Was When You Bought the Policy

A small business can change considerably in just a few years.

Perhaps you’ve:

• Added employees

• Purchased additional vehicles

• Hired new drivers

• Expanded your service area

• Taken on larger customers or contracts

• Added a location

• Started using subcontractors

• Added new services or operations

• Increased the number of customers visiting your property

Revenue growth is easy to recognize. Changes in exposure can be less obvious.

That’s why reviewing liability protection shouldn’t necessarily be limited to asking whether your current policies are still in force. It’s also worth asking whether the limits still make sense for the business you’re operating today.

What Happens When a Claim Exceeds Your Limits?

Commercial insurance policies can provide liability protection for different areas of a business, depending on the policies purchased and their terms.

Each policy has limits.

A serious accident, injury or other liability claim can raise an important question:

What happens if the damages are greater than the applicable insurance limit?

Commercial umbrella or excess liability insurance may provide an additional layer of liability protection above certain underlying policies.

Exactly how that additional coverage works depends on the policy.

Commercial Umbrella vs. Excess Liability

You’ll often hear commercial umbrella and excess liability discussed together, but the terms aren’t necessarily interchangeable.

An excess liability policy generally provides additional limits over specified underlying insurance.

A commercial umbrella policy also provides additional liability protection and, depending on the particular policy, may operate differently from an excess policy.

Coverage, exclusions, underlying insurance requirements and policy provisions vary by insurance company.

For a business owner, the important question isn’t simply:

“Do I have an umbrella?”

It’s:

“What additional protection do I have, what policies does it sit over, and how does it work with my existing insurance?”

Contracts Can Change the Conversation

Growth can also bring new insurance requirements.

A customer, landlord, lender or other party may require certain liability limits as part of a contract. A business taking on larger projects or customers may discover that the limits it previously carried no longer meet contractual requirements.

That doesn’t necessarily mean purchasing an umbrella is the only solution.

It means the contract and the existing insurance program should be reviewed together so the business owner understands what is being required and what options are available.

Think About the Severity of a Loss, Not Just How Often Claims Happen

A business can operate for years without experiencing a significant liability claim.

That doesn’t necessarily tell you how large a future claim could be.

A serious automobile accident involving a company vehicle, a significant injury, or another major liability event can have financial consequences far beyond an ordinary claim.

That is why liability planning isn’t only about how likely something is to happen.

It’s also about considering:

How serious could it be if it did?

When Should a Business Review Its Liability Limits?

A good time to revisit liability protection is whenever the business changes significantly.

Consider a review when you:

• Add vehicles or drivers

• Hire employees

• Move or add locations

• Sign larger contracts

• Expand geographically

• Add services or operations

• Begin working with different types of customers

• Experience substantial growth

• Receive new insurance requirements from a customer or contract

An annual insurance review can also provide an opportunity to step back and compare the current insurance program with the business as it operates today.

Start With the Business, Not the Insurance Product

The goal shouldn’t be to assume that every business needs a commercial umbrella or a particular amount of excess liability insurance.

Start with the business itself.

What do you do? What has changed? Where could a serious liability exposure arise? What limits do you currently carry? And what could happen if a claim exceeded them?

Those questions create a much more useful conversation than simply asking how much an umbrella policy costs.

As your business grows, your insurance program should periodically be reviewed to make sure it still reflects the business you’ve built.

Insurance Considerations

This resource highlights insurance and risk-management questions businesses may want to consider when evaluating liability limits. It is not intended to recommend a particular amount or type of insurance or determine how a particular claim would be covered. Coverage, limits, exclusions, underlying insurance requirements and policy terms vary by insurance company, policy and individual circumstances. Speak with your insurance professional about your specific business and insurance program.