While you may have heard many people use the terms “excess” and “umbrella” interchangeably, (when referring to additional coverage above and beyond a primary or underlying policy), they are different. An underlying policy is the primary insurance coverage designed to protect against particular risks and perils, subject to financial limitations. Read on to learn some common differences between excess and umbrella liability insurance and how it may impact your N.C. business.
Keep in mind that every insurance policy comes with its own conditions, a list of covered perils, along with financial limitations. Any claims relating to a covered incident that exceed that financial limit OR are not included within the restrictions become the responsibility of the policyholder, and NOT the insurance company. This is when the differences and similarities between excess and umbrella become important.
Umbrella Liability Policy Defined
An umbrella is designed to provide protection above and beyond the primary liability policy and typically is there for protection against catastrophic situations. The purposes of an umbrella include:
- Provides excess limits once the primary liability limits are exhausted
- Provides protection against some claims NOT covered under the underlying (primary) policy (subject to a SIR) *Self-insured retention is the amount of money the insured must pay, typically $10,000, before the umbrella will kick in.
For example, let’s assume there is a commercial auto policy with a property damage claim that is valued at $800,000, yet the property damage limit of liability is only $500,000. Because there was coverage in place, the primary commercial insurer paid the limit of liability ($500,000), leaving a balance of $300,000. In this situation, both an excess and umbrella policy would offer coverage for that additional amount in liability. However, if the coverage was denied by the underlying commercial carrier, the umbrella policy may have coverage available, assuming the insured pays the SIR, but excess would not apply.
Excess Liability Defined
An excess policy is designed to provide limits above and beyond the ones outlined in the primary (underlying) liability policy. For an excess policy to kick in, the limits of liability of the underlying policy must be exhausted first. Also, an excess liability policy does not include any extra coverage other than what the underlying policy provides. If coverage under the primary liability policy is denied or excluded, there is no excess insurance that would apply. Sometimes this may be referred to as excess liability “Follow Form.”
Similarities Between Excess and Umbrella Liability Insurance
While different, there are similarities between excess and umbrella liability insurance.
- Typically, they both include a “per occurrence” and “aggregate” limit starting at $1,000,000 and typically increase in increments of $1,000,000.
- Both excess and umbrella are relative to the underlying insurance, aka primary policy.
Which Insurance is Better? Excess or Umbrella Insurance
Deciding which one is better depends on your particular insurance needs. However, while both can offer added protection above and beyond the primary limits of liability, excess policies often cost less because the coverage is more defined. It never affects the terms of your primary policy like umbrella insurance. Umbrella insurance can be more expensive since it offers a broader type of excess insurance and can cover situations that fall outside the scope of the primary policy. So, if your business has adequate commercial liability coverage, you may be paying for something you don’t need and an excess policy may be better suited.
Regardless, we, at Twin City Insurance, can assist you with any questions or concerns regarding umbrella or excess insurance and can help determine which one is right for your commercial insurance needs. Call us TODAY at 828-464-2643.