Umbrella vs. Excess Liability Insurance: What’s the Difference?

Umbrella and excess liability insurance are occasionally confused as being the same thing, but the policies are far from identical.  Both usually limit their coverage extensions to liability exposures (third party claims) and not to your physical property (first party losses), however, they differ when it comes to additional limits versus additional coverage.

Excess Liability Insurance

Excess liability coverage is an extension of a basic liability policy, such as an auto policy or general liability policy.  Its purpose is to provide an additional layer, i.e. higher limit, of coverage over and above the underlying policy.  It does not provide additional coverage hazards of loss beyond those covered in the underlying policy.  

For example, suppose an auto liability claim occurs which results in a judgment of $5,000,000.  If your underlying coverage has a limit of $1,000,000, any claim above that amount will not be covered by that policy.  An excess liability policy with a limit of $4,000,000 would have to have been purchased in order to pay the remainder.  

An important point about excess liability insurance is that it follows the underlying policy.  In other words, an excess auto policy does not cover claims other than those which are covered by the underlying auto policy.  It provides higher limits of coverage, but not additional types of coverage.  

Commercial Umbrella Insurance

Umbrella liability insurance provides coverage for claims above the limits of an existing insurance policy, but also provides additional coverages that were not included in the underlying policy.  However, when such a claim occurs the umbrella policy will have a deductible applying to that claim.

An umbrella policy usually applies to your underlying liability policies with exclusions and limitations of coverages based on the scope of the umbrella policy. 

Common policies under the same umbrella liability policy often are:

  • General liability insurance
  • Employer’s liability insurance
  • Commercial auto insurance
  • Hired and non-owned auto insurance

Who Needs Additional Coverage?

Both umbrella and excess liability insurance can provide coverage beyond the limits of your auto or general liability insurance. Businesses elect to purchase these additional policies to fulfill a client’s requirements for coverage and/or as a safeguard for their assets. 

Businesses that benefit from these coverages are those that usually:

  • Face high liability risks dictated by statute or contractual compliance
  • Must carry high liability limits to work with a particular client
  • Need greater liability protection
  • Have expensive assets and equipment to protect

With the rise in costs of auto insurance claims, these policies are important for organizations that operate commercial vehicles where accidents are sometimes unavoidable. Having excess liability or umbrella insurance for your business can help protect you from catastrophic financial loss that often occurs from an accident for which your business is held negligent. 

Hope for the Best but Prepare for the Worst

Future insurance claims can’t be predicted, but being prepared for them starts with KF&B.  With decades in the transportation insurance industry our team understands the niche aspects of transportation and can help you find innovative insurance solutions for your needs. For more information on how we can help protect your organization, please contact us today to set up an appointment.