Every business owner should ask themselves these two questions annually:
- Are our policy limits high enough to protect us against a major claim?
- Do our policies cover all of our risk exposures, or are there gaps in coverage?
Primary insurance policies can be maxed out during major claims, leaving your business responsible for remaining costs. This is where commercial umbrella liability or excess liability insurance can provide additional protection.
Commercial Umbrella Liability vs. Excess Liability Insurance
Though often confused, commercial umbrella liability and excess liability insurance serve distinct purposes:
- Commercial Umbrella Liability Insurance
Expands both the policy’s limits and scope of coverage. It can broaden protections, fill gaps in the underlying policies, and increase financial protection.
- Excess Liability Insurance
Increases the underlying policy limits without expanding the scope of coverage. It is designed purely to extend the maximum coverage amount provided by the original policy.
Example:
Imagine an employee causes a severe accident during a business trip overseas. If your auto policy doesn’t cover international claims:
- Excess liability insurance would not apply.
- Umbrella liability insurance might, depending on its terms and conditions.
The Relationship with Underlying Policies
- Umbrella Insurance:
Operates as its own policy with separate terms, exclusions, and its own deductible, called the self-insured retention (SIR).
- Excess Liability Insurance:
Increases the primary policy’s limits and depends entirely on the original policy’s coverage.
Example:
You have a general liability policy with a $1M limit and a $3M umbrella policy with a $1M SIR. A claim totals $1.5M:
- The general liability policy pays $1M.
- The umbrella policy covers the remaining $500,000.
However, if you lower your general liability coverage to $750,000, you’d need to pay the $250,000 difference before the umbrella coverage applies.
What’s Best for Your Business?
Determining whether to choose umbrella liability or excess liability insurance depends on your business’s unique risk exposures and coverage needs.
At Swarts, Manning & Associates, we specialize in tailoring commercial insurance solutions to meet your business’s specific requirements. Contact us today for a complimentary consultation at (833) 878-2820.
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