How do commercial general liability, general aggregate, and umbrella liability differ from each other?
What type of insurance you get will determine how much you’re covered in different situations. So when picking insurance, it’s a good idea to pick ones that you feel like you’ll need – ones that will help you most with your business. And it’s also good to know all the terms involved with the insurance, so you don’t end up making fatal mistakes which could end up harming you greatly.
General liability
General liability insurance is a type of policy and coverage. The chief purpose of general liability insurance is to protect you against claims made by regular members of the public against your business. Reasons for some of these claims can include injury, illness, and property damage.
This is good insurance for all types of businesses because it’s general, so it can be handy in many different situations. Commercial general liability is the foundation for most of the liability insurance policies of an organization’s liability insurance policies.
General aggregate
A general aggregate is the maximum amount of coverage that you get with any commercial general liability insurance – basically the maximum amount of money an insurer will pay out during a policy tenure. The general aggregate limit essentially places a ceiling on the insurer’s obligation to pay for things like property damage, medical bills, lawsuits etc. The higher the coverage of the insurance, the higher the premium, as expected.
Like other businesses, insurance companies also face risks, so their objective with the general aggregate is to try and offer you the protection you need while also curtailing their risks. It helps to create a balance for them so that the insurance they give is beneficial for them too in some way.
The aggregate limit will effectively make the insurance redundant as soon as you reach the limit. Reaching the limit can happen through one case of needing the insurance or multiple.
What do you do, then, when you’ve exhausted your aggregate limit? This is where umbrella liability comes into play.
Umbrella liability
General liability and umbrella liability are two broad categories of commercial general liability insurance policies. Both of these offer coverage to the insured, relating to any claims that can arise.
As soon as you’ve exhausted your aggregate limit, your insurance company will not pay any more towards claims or medical bills and lawsuits. Umbrella insurance is the extra liability insurance that offers you coverage over and above your liability insurance policy. It offers protection against various claims and lawsuits, referred to as ‘umbrella’ insurance because of the wide range of things it can help with. This insurance becomes active as soon as the liability limit on other insurance policies is exhausted.
It doesn’t just have to be general liability insurance which has its limit exhausted – it can cover a range of other lines of insurances too.
If your general aggregate limit or occurrence limit is exceeded with any insurance you have, the umbrella insurance will respond to the claims. Usually, an umbrella policy is sold as an individual insurance policy. In certain situations, an umbrella policy can also cover claims that are not covered by the primary general liability insurance policy. In such cases, policyholders are required to satisfy a self-insured retention, before the umbrella policy’s payment of any claims.
Per occurrence
Another term that is useful to know when getting insurance is ‘per occurrence’. This is the maximum amount of money your insurance company will dish out for one claim. Your general aggregate limit would most probably be higher than this – this is just the maximum amount for one claim, and you could have many.
Case
Let’s say there is a building company called Construction4U, owned by someone named Harry. Someone enlists Harry and his company to reconstruct a block of apartments for them. One day, while coming to see what is happening, a piece of wood from above falls and hits his back, resulting in broken ribs and legs, so the person sues the company for not following safety regulations.
Because Harry’s company has general liability insurance, fortunately he was able to apply, to settle the case for $1.5 million. The insurance company had imposed a general aggregate limit, however, of $1 million. If Construction4U did not have umbrella insurance on top, the extra $0.5 million would need to be paid by the company themselves, meaning they could end up potentially going bankrupt. But having umbrella insurance means they would be able to pay that extra $0.5 million instead of the company, saving them.
Pros and cons of umbrella liability insurance
Whether you need umbrella liability insurance depends on a range of things, and how much protection you’ll need realistically, such as if you’re a small or a larger business, or if your business has higher risks in it compared to others. To help you decide, here are a few pros and cons to getting this insurance:
Additional protection – the biggest advantage is additional protection, which is especially important if your business is worth a lot of money or has lots of valuable assets. If you’re sued you could lose your business. Umbrella insurance policy amounts typically start at $1 million.
Low cost – umbrella policies generally are relatively inexpensive in relation to the amount of coverage they provide. This is because this insurance is secondary, so it only takes effect once you exhaust other coverage, so it’s great if you really need it.
Broader coverage – your general liability may not cover all situations, which umbrella insurance can cover instead – for instance terrorist attacks
Additional work and expenses – getting this insurance, though cheaper than others, does mean you still have to pay more money, which may be hard for small businesses on a budget to pay up for the additional premium. You’ll also have to show insurers information about your business practices and loss history, which can take time and effort that could go into business.
Never using it – you might end up paying for something you’ll never use – in many cases your general liability insurance should be enough. You need to decide whether you really need it or if spending that money is good for additional peace of mind.
Does your business need general liability insurance? To find more on this, visit this site by TRUiC which details everything you need to know about it.