As a business owner, you often hear horror stories of accidents, lawsuits, and large settlements being awarded. You shudder to think what something similar would cost you, especially knowing your liability insurance limits. You may even have heard of excess liability and umbrella insurance policies.
The two terms are often used interchangeably, and it’s easy to think that they’re one and the same.
It’s important to know that excess liability insurance and umbrella insurance policies can only be applied to three types of policies:
- General liability
- Employment liability
- Commercial auto insurance
WHAT IS EXCESS LIABILITY INSURANCE?
Although often confused with umbrella insurance due to some similarities, excess liability insurance is its own policy and has its own rules to follow.
- Excess liability provides coverage when one of the three liability policies reaches their limit.
- Excess liability can only be applied to one underlying liability policy at a time. In order to have excess liability for your general liability, employment liability, and commercial auto insurance, you would need to purchase three separate excess liability policies.
An example of how excess liability insurance works would be if your company was at fault in an auto accident. The overall cost, due in part to injuries and hospitalization, exceeds $3 million. Your commercial auto insurance policy limit is $2 million. The excess liability policy would cover that remaining $1 million. Without this policy, you would have to pay the difference out of pocket.
WHAT IS UMBRELLA INSURANCE?
As mentioned before, there are enough similarities between umbrella policies and excess liability policies that the two are often confused. However, let’s look at how an umbrella policy works and the differences become clear.
- Umbrella insurance can be applied to multiple policies. No need to purchase more than one.
- Umbrella insurance can cover claims not included in existing liability policies.
- Like excess liability, umbrella insurance pays the difference when a policy reaches its limit.
A stark difference between the two is that an umbrella insurance policy requires a self-insured retention (SIR) in order to cover claims that aren’t covered by your liability policies. This is an amount you’ll pay before the insurance company will pay a claim. For example, if you have an umbrella policy with a $25,000 SIR and you make a claim for $200,000, you’ll have to pay $25,000 towards the claim and the umbrella insurance policy will cover the rest.
Every business has different needs, goals, and expenses. The decision between an umbrella policy and an excess liability policy is unique to the business. It’s a good idea to consider one or the other for added protection against accidents, lawsuits, and other unforeseen problems that can occur at any point.
If you’re unsure which type of policy would be best for you and your business, contact us today. We’re an independent insurance agency with no ties to any one provider. We can and will find the best policy for your business.
Image courtesy of Flickr user Y’amal.