Umbrella vs. excess liability insurance are both additional coverages that provide extra protection if you reach the limits of your primary insurance policy.
While both umbrella and excess liability insurance provide additional protection beyond your primary policy, an umbrella policy offers broader coverage that can include liability exposures not covered by your primary policy, while an excess liability policy provides additional coverage once the limit of your primary policy has been reached.
Differences Between Umbrella and Excess Liability Insurance
Umbrella insurance and excess liability insurance are two important types of coverage that can provide additional protection beyond your underlying insurance policies. While these two policies are often used interchangeably, there are some key differences between them.
Umbrella Insurance Policy
An umbrella policy is a comprehensive insurance policy that provides additional coverage beyond your underlying policies. It provides additional protection for general liability, workers’ comp, and commercial auto. It is designed to provide broad protection over a wide range of liability exposures, including liability claims that exceed your primary policy’s limits. An umbrella policy is known for its higher coverage limits, which can range from $1 million to $10 million or more depending on your requirements.
Excess Liability Insurance
Excess liability insurance, on the other hand, is a policy that kicks in once your primary policy limit has been exhausted. It is designed to provide an additional layer of protection in the event of a catastrophic loss or a claim that exceeds your primary policy limit. Technically, it is not a standalone policy but rather an extension of your underlying general liability policy.
One key difference between umbrella and excess liability insurance is that excess liability coverage is limited to the policy period. Once the policy period ends, the excess coverage also ends. Additionally, unlike umbrella insurance, which offers broad coverage for a wide range of liability exposures, excess liability coverage typically only covers the specific risks covered by your primary policy.
Types of Coverage Provided by Umbrella vs. Excess Liability Insurance
Let us take a closer look at what each type of policy provides in terms of coverage.
Coverage Provided By Umbrella Insurance Policies
Umbrella insurance policies provide additional coverage beyond the underlying liability insurance limits. Unlike excess insurance, which only adds extra limits to the same coverage provided by the underlying policy, umbrella insurance can cover a broader range of risks and provide extra layers of protection.
Umbrella policies typically provide coverage for:
- Business liability: If you own a business, umbrella insurance can provide additional protection for claims that exceed the limits of your business liability insurance policy.
- Auto liability: If you are involved in an accident and found liable for property damage or bodily injury beyond the limits of your auto insurance policy, umbrella insurance can provide additional coverage.
- Catastrophic losses: Umbrella insurance can provide coverage for catastrophic losses that exceed the limits of your primary insurance policy. This can include legal defense costs, judgement awards, and other expenses.
- Workers’ compensation: It adds coverage for employees’ injuries. For example, if an employee gets injured, and the bodily injury expenses get exceeded, umbrella would provide additional expenses. Say you have $1 million in workers’ comp coverage and the claim exceeds $1 million, the umbrella would then pay up to its limits.
Overall, umbrella insurance policies can provide peace of mind by offering additional protection for a variety of liability exposures.
Coverage Provided By Excess Liability Insurance Policies
Excess liability insurance policies provide additional coverage beyond the limits of your primary insurance policy. Typically, excess liability policies offer coverage for general liability, which includes bodily injury, property damage, and personal injury claims.
Under an excess liability policy, the insurance company will pay claims that exceed the limits of your primary policy, subject to the policy’s limit. For example, if your primary insurance policy has a limit of $1 million, and a claim is made against you for a total of $2 million, your excess liability policy will cover the remaining $1 million, up to its limit.
In addition to offering additional coverage, excess liability policies may also provide broader coverage and higher policy limits than your primary policy. This can help protect you from catastrophic losses that could otherwise inflict significant financial harm.
Benefits of Having an Umbrella vs. Excess Liability Policy
As a business owner or individual, protecting yourself from potential liability claims should be a top priority. While your primary insurance policy may provide coverage for common claims such as property damage and bodily injury, it may not always be enough. This is where umbrella and excess liability policies come in.
An umbrella policy provides an additional layer of protection above and beyond the limits of your primary insurance policy. It can offer higher limits and broader coverage than your primary policy and provides protection for liability claims not covered by your primary policy. For example, if a claim exceeds the limits of your auto insurance policy, your umbrella policy can provide additional protection.
Excess liability insurance, on the other hand, provides coverage for specific types of liability claims where your general liability policy is not enough. Excess liability policies can also provide higher policy limits than your primary policy, which can help protect you from catastrophic losses.
Protecting Assets from Unforeseen Circumstances
Unforeseen circumstances can arise at any moment and have the potential to cause significant financial losses. This is why it’s important to have the right types of insurance in place to protect your assets. Two types of insurance policies that can provide this protection are an umbrella policy and excess liability insurance.
For example, if someone sues you for more than the liability limits of your commercial auto insurance policy, your umbrella policy can provide extra protection. This additional coverage can help protect your assets in the event of an unexpected lawsuit.
Excess liability policies can also offer higher policy limits than your primary policy, which can help protect your assets from catastrophic losses.
In both cases, these policies can protect your assets from unforeseen circumstances and provide peace of mind. This protection can be especially important for business owners whose assets are at risk due to liability exposures.
Wider Range of Threats Covered Under the Policy
When it comes to protecting yourself against liability claims, having adequate insurance coverage in place is essential. While a primary insurance policy offers a certain level of protection, additional threats not covered by this policy may exist. This is where umbrella policies and excess liability insurance come into play.
One of the key differences between umbrella policies and excess insurance is the wider range of threats it covers under these policies. Umbrella policies, in particular, offer broader coverage across multiple liability exposures – whatever the underlying policies are.
For example, an umbrella policy may offer additional protection for a slip and fall accident, or provide coverage for liability claims that arise from oral contracts. This can be especially important if you are a business owner who frequently engages in oral contracts with clients or partners.
Excess liability insurance, on the other hand, typically provides coverage for specific types of liability claims that your primary policy may not cover.
Lower Costs Than Buying Multiple Policies Individually
An important advantage of choosing umbrella policies or excess insurance over buying multiple policies individually is the cost savings. Instead of increasing limits on all policies, you can get increased coverage with a low premium umbrella or excess liability policy.
Comparison of Cost for Different Types of Insurance Policies
Umbrella insurance policies typically provide broader coverage and higher liability limits than your primary insurance policy. This type of policy provides an extra layer of protection that goes beyond the limits of your underlying liability policy. The cost of a typical umbrella policy can range from $500 to $1,500 per year for a $1 million policy limit, depending on the insurance company, policy limit, and your geographic location.
On the other hand, excess liability insurance policies typically provide additional limits of liability protection beyond what is available in your primary insurance policy. Just like any other insurance policy, excess liability coverage may also have a deductible or a self-insured retention. For example, if you have a $1 million excess liability policy with a $10,000 self-insured retention, you as an insured, are responsible to pay the $10,000 in the event of a claim, afterwards, the excess policy would cover the remaining $990,000. The cost of an excess liability policy can vary depending on the same factors as an umbrella policy, but typically ranges from $500 to $1,500 for a $1 million limit.
Comparing the costs, an excess liability policy is less expensive than an umbrella policy due to the fact that it sits above your primary policy and only covers claims once you exhaust your primary policy’s limits.
Factors That Influence The Cost Of An Umbrella vs. Excess Liability Policy
The cost of an umbrella vs. excess liability policy can vary significantly depending on a range of factors. Here are some of the key elements that influence the cost of these policies:
- Coverage Level: The primary factor that impacts the cost of an umbrella or excess liability policy is how much coverage you need. The higher the coverage limit, the higher the premium is likely to be. For example, a liability policy with a $1 million limit will be less expensive than a policy with a $10 million limit.
- Industry Type: The industry or business type is another significant factor that can influence the cost of an umbrella or excess liability policy. Some industries are inherently riskier than others, such as construction or healthcare, and may require higher limits of coverage, which can increase policy costs.
- Potential Risks: The potential risks and losses that a policy covers also impact the cost of an umbrella or excess liability policy.
- Type of Business: The type of business insured also plays a role in determining the cost of an umbrella or excess liability policy. Businesses that have a high-frequency of insurance claims or tend to have high-value claims may face higher premiums.
- Location: The geographic location of the business or individual insured impacts their risk factors, which influence the cost of an umbrella or excess liability policy. Those located in areas with high crime rates or natural disasters may need higher coverage limits, leading to higher premiums.
Insurance companies use sophisticated calculations to assess the risk associated with each policyholder based on the aforementioned factors. Ultimately, the cost of an umbrella or excess liability policy depends on the individual risk factors and needs of the insured party.
