Posted on May 17, 2014
Companies needing additional liability protection will often turn to umbrella or excess liability policies to provide added insurance limits. Umbrella liability offers a safety net of protection to other commercial insurance policies that companies purchase such as commercial auto, employer and general liability coverages.
Differences between Excess Liability and Umbrellas
At one point in time, excess liability and umbrella liability were two totally different insurance coverages; however, the distinction between the two has blurred over the years as insurance companies introduced hybrid type policies that combined them both.
Traditionally, excess liability insurance added additional coverage to a company's existing liability policies. It might increase limits per person, per occurrence or per accident without affecting the other liability insurance. Conversely, umbrella liability insurance would add coverage over the entire liability insurance program increasing limits of liability on each policy owned by the company. The umbrella coverage is broader with fewer exclusions or limitations and provides first dollar coverage for potential risks where the company may not have specific liability coverage.
Right Amount of Excess Liability Coverage
Many companies will purchase excess or umbrella liability in amounts of $1 million to $5 million. Determining the right amount of coverage for an umbrella liability policy involves evaluating potential risks to a business as well as the company's location. If a company is in a high risk business, has significant assets and/or is located in a state where there are large lawsuit awards, then they will want to purchase larger amounts of excess liability coverage.
Examples of Umbrella Coverage
The way umbrella liability insurance works is that if there is $1 million in coverage for general liability, and a settlement for $2 million is reached, the general liability insurance policy will only pay $1 million toward the settlement. An umbrella liability policy would cover the difference and pay the remaining $1 million.
Umbrella and excess liability insurance policies enable companies to purchase higher policy amounts and sometimes broader coverage without needing to purchase multiple business insurance policies. Because different insurance companies offer umbrella and excess insurance plans that may combine the two into a hybrid form of coverage, it is important for business owners to review these policies to carefully consider what coverage is being provided and how it affects limits, insurance amounts and existing liability policies.