Umbrella/Excess Coverage

Umbrella insurance pertains to liability insurance that exceeds the specified limits of other business property insurance policies. When a business’s claim on its primary policy exceeds the limits of that policy, the umbrella policy covers the remaining losses up to its limits. Umbrella insurance also serves to fill in gaps left in primary coverage policies. Companies can buy umbrella insurance for amounts ranging from $500,000 up to $5 million, depending on their needs and their capabilities of meeting the premium payments.An umbrella policy delivers three major benefits. The first is that the policy offers supplemental lawsuit coverage of at least $1 million. The second is that it also provides extra coverage for defense attorneys’ costs. In some cases, attorneys’ fees can exceed $100,000, even if the case is eventually dismissed. The third is that it furnishes liability coverage for many types of lawsuits not included in the company’s primary insurance coverage.

Excess insurance coverage functions in a similar manner to umbrella coverage, but carries more restrictions. Excess insurance offers coverage over and above the amount offered by primary insurance, but does not fill in the gaps in that primary coverage. The excess insurance only activates if the damages are attributable to a cause covered by the primary insurance. Businesses can buy excess insurance as either a stand-alone policy or on a “following form” basis as an add-on to the primary coverage.

A major insurance mistake small businesses make when purchasing supplemental insurance involves the definitions of umbrella coverage and excess coverage. Many inexperienced business owners see that both types of policies cover damages above the primary policy’s limits and believe that they both work the same way. However, excess insurance coverage acts as an extension of the functions of primary coverage, while umbrella insurance covers some types of damage not included in a primary policy.