How Much Umbrella Liability Insurance Should You Buy

This is a tough question. I’m asked it all the time by insurance buyers. For most American businesses the answer lies between $1,000,000 and $100,000,000.

The commercial umbrella liability policy provides additional liability coverage over general liability, auto liability and employers liability (part of the workers’ comp policy). It can also provide excess liquor liability coverage.

An umbrella policy of $5,000,000 provides an extra $5,000,000 of coverage over the underlying policies.

Every business should have at least $1,000,000. From there, it is a matter of economics. How much will $5,000,000 cost? How much will $10,000,000 cost? What is the value of your company? Is the risk of an uninsured loss worth the premium you save by not buying additional umbrella insurance limit?

If you have a $5,000,000 umbrella policy and the next $5,000,000 is going to cost you $50,000, then you have to decide if the risk is worth the cost.

I have seen complex formulas that review assets and hazards. It all, however, always comes down to economics. Is the risk worth the cost?