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Umbrella insurance and excess liability coverage are two different types of insurance coverage that offer higher policy limits than other basic types of personal lines insurance and commercial insurance policies. These two terms are often used interchangeably, likely because they do bear some similarities. For one, both umbrella insurance and excess liability coverage can be applied to certain policy types – such as general liability, employer’s liability and commercial auto – when the basic policy limits have been reached. However, there are some very key differences between these two types of insurance, and it’s important to understand them in order to determine which policy is the best fit for clients looking to extend their policy limits.
In order to better understand the difference between umbrella and excess liability insurance, let’s examine what each type of policy is designed to do.
- Umbrella Insurance is designed to be applied to multiple underlying liability policies. It can: provide additional limits to the insurer once their underlying policy’s limits have been exhausted by claim payments on an occurrence; drop down when the aggregate limit for the underlying policy is exhausted by claim payments; and provide protection against additional claims that are not covered by the underlying policy.
- Excess liability is designed to provide higher limits to one underlying policy, such as general liability. The sole purpose of an excess liability policy is to provide higher policy limits above what the underlying insurance can provide, and does nothing else to broaden the coverage.
Umbrella insurance is a great choice for clients who have multiple policies that they need higher limits for, but it does come with some restrictions. Umbrella coverage is a completely separate policy from the underlying policies that it refers to, so it has its own insuring agreements, exclusions, conditions, limits, and definitions. Most umbrella policies will only cover underlying policies if certain condition are met. For example, many umbrella policies require that the underlying policies’ limits are not less than a specified dollar amount. For example, the insurance provider for a $1 million umbrella policy may require that the underlying policy has a personal liability limit of at least $300,000. If the underlying policy limits are changed mid-term, it may void the umbrella coverage or change how it applies to the policy.
Excess liability policies. however, are dependent policies. They are based coverage provided by the underlying policy and do not have their own set of agreements, exclusions, conditions, definitions etc. The main restriction is that they do not add any extra coverage for claims outside of what is laid out in the underlying policy and just merely broaden the policy limits.
Both umbrella and excess liability policies are great options for extending your client’s insurance policy limits. As long as you understand the key differences, you can help your clients find the best fit for their excess insurance needs.
About Mavon Insurance
At Mavon Insurance, we pride ourselves on our unique approach to insurance. We focus on integrity, communication, professionalism, respect and gratitude to help our clients succeed and place business in specialized markets. For more information about our products or to become an agent, please contact us today at (855) 248-1480.