What is the reaction limit under a commercial umbrella policy?

A commercial umbrella policy is designed to provide an extra layer of liability coverage above and beyond the limits of an insured's primary liability policies. The reaction limit, often referred to as the "self-insured retention" or "retention amount," is the amount that the policyholder is responsible for before the umbrella policy comes into effect.

A limit of $2 million is common for many commercial umbrella policies, as this amount provides significant coverage while also being manageable for many businesses. This limit ensures that substantial claims can be addressed while also encouraging the insured to maintain proper primary coverage levels. Typically, umbrella policies kick in when the underlying insurance policies have been exhausted or have reached their limits, making the $2 million retention a strategic choice reflecting both the potential risk exposure and the financial capacity of businesses.

Given the typical structure of commercial umbrella coverage, a retention limit of $2 million effectively balances risk management and cost for policyholders, which aligns with industry standards. Therefore, this choice serves to reinforce adequate coverage across various risks that a business might face.