What is the difference between Excess and Umbrella Insurance?
Excess and Umbrella insurance is a very important coverage to have whether you are in construction or work in an office. Often excess insurance and umbrella insurance are used interchangeably and misconstrued as the same coverage, when in fact they are actually different coverages. Either policy is designed to provide additional protection over the underlying policies.
What Are Underlying Policies?
Underlying policies would be the insurance policies that you already have in place to protect your business. These policies will provide a specific, targeted area of protection. Some examples of underlying policies would be:
- Commercial Auto Liability
- General Liability
- Pollution Liability
- Professional Liability
- Worker’s Compensation
- Other coverages’ specific to an industry
It is important to note that the only coverage listed above is for liability. Whether it is excess or umbrella insurance you purchase, it will only provide additional liability protection. Property coverage is NEVER offered by an umbrella or excess policy.
Excess Insurance is exactly what it says, it is excess over the policies it covers. How does it work? Like this, a general liability policy with a $1,000,000 occurrence limit that covers bodily injury and property damage with a limitation for coverage in the United States and its territories only. Let’s say the excess policy purchased was for an additional $1,000,000 of coverage. This coverage will follow the exact same coverage as the underlying general liability, which includes the same limitations and exclusions, such as the exclusion of coverage outside of the United States and its territories.
This is just an example to show how the coverage works. The important point of the coverage is that the excess policy is just that, excess coverage over the underlying policies and provides coverage exactly as those it goes over.
Umbrella Insurance is a little more comprehensive in protection. The major difference is that the umbrella policy is a true blanket over the underlying policies. It is a global policy with its own set of limitations and exclusions, in most cases less than the underlying policy. Referring to the above example, the umbrella policy would not have the limitation of the United States and its territories and would provide coverage anywhere in the world.
Most umbrella policies have what is either a deductible or a self-insured retention limit. This could be as low as $1,000 but is typically more like $10,000. This is built into the policy for the instances where the underlying policy excludes coverage, the policyholder would pay the retention and then the umbrella policy would pick up and provide coverage.
Which to purchase, Excess or Umbrella Insurance?
In most cases, excess insurance is sufficient. If you are concerned about a loss not being covered then you should be examining your underlying policies. The reason to purchase either excess or umbrella insurance should be to provide extra protection in the instance of a loss exceeding the limits on the underlying policy.
Depending on the industry and/or business specifics, an excess policy may be the only option available. Some industries will specify that an umbrella policy is required to obtain a contract or be selected for a job. If the main reason for purchasing this type of policy is for a contract, it will be important to determine which will be required.