Key takeaways
- Umbrella or excess insurance provides extra limits of coverage on top of a primary insurance policy.
- Excess insurance increases limits over and above those of the primary insurance policy and covers loss or damage caused by specific hazards specified in the underlying policy.
- Umbrella insurance provides coverage against a catastrophic loss that exhausts the limits of the underlying policy and can provide additional coverage over multiple policies.
- Excess policies are suitable for small to midsize companies, while umbrella policies are geared towards larger and more mature insurance purchasers.
Basic business insurance is essential. But what about umbrella or excess insurance?
You worked with your advisor to find a business insurance policy for your company and feel comfortable that the limits, pricing, and terms are all in line with your needs. But your advisor asks you additional information to determine if that coverage will give you the comprehensive protection you may need.
- Have you signed a new contract that requires higher limits than you currently purchased?
- Are you worried that a single catastrophic event would exhaust your per occurrence limits?
- Are you worried that a group of smaller claims exhaust your aggregate limit?
If the answer is yes to any of those questions, your advisor may suggest an umbrella or excess insurance policy.
What are these policies?
The purpose of umbrella and excess policies are to provide extra limits of coverage that sit on top (in excess) of your policy.
- Example 1: You have a general liability policy with a $1,000,000 occurrence limit and a $2,000,000 aggregate limit. You move into a new office space, where the landlord is requiring higher limits of $5,000,000 per occurrence and aggregate. You can get to those higher limits by purchasing either an excess or umbrella policy that fills the gaps between your program and your contractual requirements.
- Example 2: You are concerned that your general liability policy will not fully cover you in case of a catastrophic event, so you would like higher limits. The problem is your underwriter will not increase the limits on your current policy. A great choice would be to purchase an umbrella or excess policy, which provides an additional layer of coverage should the underlying limits be exhausted.
Wondering about the rationale behind selecting either umbrella or excess liability insurance? Despite their seemingly synonymous functions, the truth is, they diverge significantly. Discover the distinctions to make an informed choice when considering your insurance options.
Excess Insurance
Excess insurance will increase limits over and above those of the primary insurance policy. While this is also the case for an umbrella policy, excess policies will only provide coverage for loss or damage caused by specific hazards specified in the underlying (primary) policy. In other words, it is no broader than the terms of the policy that it supplements.
Example: You purchased a general liability policy, as well as an employment practices liability insurance (EPLI) policy. You need to have higher limits on the general liability portion of your insurance program to meet the conditions of a contract. You decide to purchase an excess liability policy. This excess policy will provide higher limits only for claims that would be covered by your general liability policy but had exhausted the original limits. It would not cover a claim against the EPLI policy, because this claim does not fall in the scope of your original general liability policy.
Umbrella Insurance
Underwriters design umbrella insurance policies, like excess insurance policies, to provide coverage against a catastrophic loss that exhausts the limits of the underlying policy. An umbrella policy differs from an excess policy in several of ways:
- It can provide additional coverage over multiple policies. I.e. it adds an additional limit for a general liability policy, as well as an EPLI policy.
- It can also provide coverage against some claims not covered by the underlying policies. I.e. claims brought against you for slander or invasion of privacy, which may not be covered in the primary policy. This type of coverage is provided on a first dollar basis, however, and it is subject to a retention limit insurance.
Both types of policies are extremely useful ways of increasing protection and limits for underlying coverage however, it is important to realize that they are not interchangeable. Excess policies are a great resource for small to midsize companies that are not purchasing a full insurance package, while the umbrella policy is usually geared to a larger and more mature insurance purchaser. As your business continues to grow, so will your insurance needs.
