All business owners take on risk. But that risk goes far beyond losing profits in a slow season or investing your own money in your dream business idea. You also take on liability for injuries with your products, on-premises injuries like slips and falls, or errors and omissions if you operate in a professional context. By carefully structuring your business, you can make sure those liabilities stay within your business, and that requires understanding the right umbrella insurance for high-net-worth business owners and new business owners alike.
The #1 Concept: Claims-Made vs. Occurrence
Purchasing strong liability insurance matters. Beyond the debate of excess liability vs. umbrella insurance, you also need to know how the moving parts in your policy operate. There are two main types of coverage: claims-made and occurrence.
Occurrence Is Like Car Insurance...
When you have occurrence liability coverage, that policy offers protection based on the date of the incident when the claim or lawsuit actually happens. For example, suppose someone slipped and fell in your store on Christmas Eve, but you switched to a new policy provider or cancelled your coverage for the new year. If they sue you in January or February, your occurrence liability coverage policy still applies. It's all about the date of the event, not the date of the legal action, and you're protected in the event of any other future claims about events from that insurance term.
...But Claims-Made Must Be Active
Claims-made coverage is more popular, but it can be a little less helpful. It only stays in effect as long as the policy is active when a lawsuit is filed. Imagine the same scenario as before: you have coverage when someone gets injured, but you cancel the policy, and then the injured party sues you. If that happens, you aren't covered by claims-made coverage. This puts your personal assets on the line for past events and claims about problems with old work projects.
The "Gotcha" Term: "Tail Coverage"
If you currently have claims-made insurance or you're leaning in the direction of claims-made coverage as you weigh other considerations like excess liability insurance vs. umbrella, there is a supplement coverage you can use to make claims-made policies strong. Tail coverage policies create an extended window of protection to "catch" lingering claims after you end your active claims-made coverage term.
Purchasing tail coverage is useful if:
You're retiring
You're closing down your business
You're moving to a new insurance provider (which essentially restarts your coverage window, as new providers won't easily cover old incidents)
This one-time purchase is costly, but it protects your personal assets. For comparison, the cost of a $1 million umbrella policy is up to $350 a year, while tail coverage costs up to 2.5 times the annual premium for a $1 million liability policy.
Contact Us Today to Learn More About Personal Liability and Umbrella Insurance
Have more questions about umbrella insurance, different coverage types, and how to protect yourself from personal liability as you create, grow, or transition out of your business? HEFCU is here to help you navigate your financial and insurance decisions as you create and refine your business strategy. Reach out today to talk to a team member about questions regarding excess liability insurance vs. umbrella and umbrella insurance for high-net-worth individuals, or schedule an appointment for in-depth assistance in finding insurance.
Image credit: // Shutterstock // BOKEH STOCK
