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.