What is the risk of adding an additional insured

Adding an additional insured to your commercial umbrella policy comes with several potential risks, including:

1. Reduced Coverage Limits

Since the policy’s limits are shared, adding an additional insured means that if a claim is made against both parties, your coverage could be depleted more quickly. This could leave your business exposed if large claims arise.

2. Increased Liability Exposure

By extending coverage to another entity, you might become partially responsible for their actions. If they are sued, your insurance may have to pay for claims related to their negligence, even if you weren’t directly involved.

3. Higher Insurance Costs

Depending on the level of risk associated with the additional insured, your premiums could increase. Some insurers may charge more if they perceive the added entity as a significant liability.

4. Policy Exclusions and Gaps

Not all additional insureds receive full coverage. Some umbrella policies may have exclusions that limit coverage for the additional insured, potentially leading to disputes over claim payments. Always review your policy details to ensure there are no unintended coverage gaps.

5. Contractual Obligations and Legal Disputes

If you add an additional insured to meet a contract requirement, ensure that the policy actually provides the necessary coverage. Misunderstandings about coverage limits or exclusions can lead to legal disputes if a claim arises.

How to Mitigate These Risks:

✔ Define Coverage Clearly – Work with your insurer to ensure the additional insured receives only the necessary protection.
✔ Limit Scope – Instead of granting blanket coverage, specify coverage for particular projects or liabilities.
✔ Review Contracts Carefully – Make sure the policy aligns with your contractual obligations to avoid unexpected liabilities.

Would you like help finding an umbrella policy that protects your business while minimizing risk? Toby Hansen Agency compares over 100 carriers to secure the best coverage at the lowest price.

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