Umbrella Policy vs. General Commercial Liability

[Jordan Roberts]

Hello,

Insurance has always been difficult for me to understand and I feel like it's all a scam anyway (since they always find ways out of covering stuff). Can someone explain to me the difference between having a $1mil+ Umbrella policy and having a $1mil+ General Commercial Liability policy? I need it explained like a 10 year old, not like someone who has worked in insurance before. 

If I have a $1mil General Liability policy with $2mil aggregate, do I even need an umbrella policy?

Thank you in advance!

[David M.]

@Jordan Roberts

I'm not an insurance agent, but I'll try to explain...

So, apparently you have sort of business otherwise you wouldn't have a GCL policy, or asking about it.  This is about liability.  Lets say you own a store and somebody slips and falls on your sidewalk.  This person wants to sue you, for whatever reason (e.g. it was a snowy day, rainy, too much crap on the sidewalk and tripped on your broom handle, whatever).  I believe your GCL policy would kick in...

An Umbrella Liability policy, note its still a liability policy, by definition provides coverage "over and above" an existing liability policy.  In this case, the underlying policy is your GCL (other examples would be a homeowners policy, auto insurance, boat insurance, etc.).  If the above suit for some reason exceeded $1mil, then having an umbrella policy would cover the portion of the damages over the $1mil.

Umbrella policies are generally pretty cheap for the amount of coverage provided because the initial costly/high risk portion of the liability is already covered by the underlying policy.  The Umbrella policy kicks in when the underlying coverage is maxed out, hence the name.

So, you can have a GCL or a GCL and Umbrella.  But, you can't just have an umbrella policy.  There are many reasons to have an Umbrella policy.  if you are running a high risk business, say demolition business or maybe a gas station, there is a good amount of liability there.

(Not to try to confuse you, but just remember that if one of your employees gets injured, that should be Workmens Compensation, an entirely different insurance policy.  So, not to advocate for crappy employers, but if you are worried about the health and safety for youremployees the liability policy isn't it.  This is about somebody "else" suing you --- I don't know what you are doing so I can't come with other good examples...  

Hope that helps.  Good luck.