As the construction industry rapidly evolves, it makes sense to want a little extra coverage for your business. One of the best ways you can easily add a layer of protection is through an umbrella policy. Here, our underwriting team explains the benefits of an umbrella policy and provides talking points to help you facilitate a conversation with your agent.

Understanding Umbrella Policies

Just like the name implies, an umbrella policy functions as an “umbrella” over your existing policies. The policy covers you from liability outside of current policies and potentially closes any gaps in coverage.

Umbrella insurance refers to liability insurance that is in excess of other specified policies, and it is also potentially primary insurance for losses not covered by the other policies. Sometimes an umbrella policy can cover claims excluded by General Liability, Commercial Auto, and Workers’ Compensation policies. The coverage details will be somewhat dependent on the policies you already carry.

Benefit from Added Security

As the construction industry rapidly evolves, one of the results is that litigation is on the rise and the costs of claims are going up. Consider the combination of the labor shortage that all contractors are facing, the use of inexperienced workers, and the increased use of owner-controlled or contractor-controlled insurance programs. Add to those such changes as including greater automation, a move toward smart homes, and subtle updates to AIA forms, and you can see how costs rise.

Even if you’ve been in the business for decades, these changes could leave you unprepared. Your umbrella policy, however, will be there in the case of an unexpected big-dollar claim. If your underlying policies don’t have coverage enough to take care of the damages, you would have to pay the difference out of pocket, which could mean bankruptcy. The benefit-to-cost ratio in that situation is huge.

An umbrella policy can also be important to have in place to qualify you to bid on larger jobs.

Talk with Your Agent

To decide if an umbrella policy is right for you, talk with your agent. Here are some questions to help start the conversation.

What is the cost of adding an umbrella policy?

The cost of an umbrella policy is usually based on a percentage (around 20%) of the premiums for the underlying policies. Your agent can provide a quote based on your current coverage.

How will this coverage affect my subcontractors?

Risk transfers. If a claim goes beyond a partner’s limit, you could take on that responsibility. An umbrella policy can help protect you from those costs. You can also require that your subs have an umbrella policy, too; include this in you written subcontract agreements and require certificates of insurance. For more details on those documents, check out this article.

Is there a difference between excess liability and umbrella policies?

Yes. Talk with your agent to determine which of these policies best suits your company needs.

What are the limits and requirements?

Be sure to understand the underlying limits and requirements of your policy. Your agent will be able to tell you any dollar amounts you need to reach. You may also be subject to a self-insured retention, which acts like a deductible.

How long will I be covered, and where will I be covered?

Keep your agent up to date on the projects you are working on, including the state you are working in and the project timeline. The form for an umbrella policy doesn’t vary by state, but states have different court and legislative responses to the types of claims that may be brought forward under your policy. This includes amount of time a claimant has to bring forward a claim. Speak with your agent to make sure your policy offers protection to cover that entire period based on where you work.

Ultimately, a conversation with your agent will help you decide if extra protection is worth the minimal cost. While your choice depends on the risks you decide to take, we recommend adding an umbrella policy to your coverage. One day, if you become responsible for a claim outside your limit, you’ll be thankful you made the investment.