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Umbrella Coverage vs. Excess Liability

Often times questions come up about the differences between Umbrella and Excess Liability policies.  Too often we are using the words interchangeably and there are notable differences between the two.  There are a few things to note right away.  First – a true Umbrella policy will typically include a deductible in the coverage form, typically called a Self Insured Retention (SIR).  Second – just because a policy covers more than one coverage does not make it an Umbrella policy. Lastly – Umbrella policy forms are broader than Excess Liability policies.

Umbrella and Excess Liability policies are used to increase the underlying policy limits.  Even if you carry the standard limits for General Liability or Auto Liability, there might come a time where a settlement in a claim is more than your policy limit. Therefore anything above that policy limit would have to be paid out of pocket by the company if an Umbrella or Excess Liability policy did not otherwise exist.

What are the differences between the two?

Umbrella liability is a type of liability that provides additional limits over the underlying liability.  The biggest advantage of an Umbrella policy is that it may provide additional coverages not otherwise included in the underlying liability policy. They also help broaden the business insurance liability so that the gaps in coverage are closed and eliminated.  It offers first-dollar liability coverage which is above any deductible or retained limit.

Excess Liability also provides additional limits over the underlying liability policies but in a more restrictive manner.  There may be more restrictions in the Excess Liability policy than the underlying liability policy has.  It incorporates and follows all the definitions and limits of the underlying policies, but does not provide any additional coverages that the underlying policy may be lacking.

Why is it a good idea to have an Umbrella or Excess Liability policy?

Either of these policies, no matter which fits your company's needs better, provide extra protection against claims by others, including personal injury or property damage for which you are legally liable, non-business related liabilities including slander, false arrest, and libel, and even defense costs for attorneys.  The limits provided in Umbrella and Excess Liability policies can range from $1,000,000 to $5,000,000 and above.  The right amount is dependent on the value of the assets you need to protect and also those assets that may be acquired in the future.

Umbrella policies can arguably be the better decision if extra coverage is needed.  An umbrella policy has a broader form and does not simply follow the underlying policy forms.  The insurance it provides is based on the coverage form found in that Umbrella policy, not just in the underlying policies.  It can provide extra insurance for the gaps missed in the underlying policies.   It can however be the more expensive option of the two.  Excess Liability policies follow the forms of the underlying policies and nothing more.  There is no excitement in an Excess Liability policy; all coverage disputes arise from the underlying coverage.

As claim costs start to rise it is always helpful to check into both of these options to help provide extra protection for your company.  The typical $1,000,000 limit isn’t what it used to be and you definitely don’t want to find that out when that large claim happens.



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