Commercial umbrellas and excess insurance are similar — they both start to work after your primary insurance is used up and they both add higher limits to your insurance portfolio. However, they each protect you in different ways. Umbrella insurance provides financial security by filling in the gaps in your coverage and raising your limits. Excess insurance provides higher limits based on your primary insurance coverage, but does not fill any gaps.
Umbrella policies provide an extra layer of business liability insurance that fills in both coverage and limit gaps in all underlying liability policies. If you have a $1-million general liability policy and a $500,000 commercial auto liability policy, your umbrella policy will fill in the $500,000 gap in the auto insurance limit. Business umbrella insurance has its own policy language and generally will supersede the exclusions and conditions of the primary liability policies. Umbrellas are generally easier to coordinate with underlying liability policies and are a highly effective risk management tool. Umbrella liability insurance rates tend to be more expensive than excess insurance.
Excess policies add a layer of business liability insurance that conforms to a specific policy or group of policies. Excess policies do not necessarily fill all the coverage and limit gaps as an umbrella policy would. The $500,000 difference in the auto insurance example above would have to be covered with your own funds until the excess policy kicked in. Excess policies almost always pick up the exclusions and conditions found in the general liability policies. One advantage is their price: excess policies are less expensive than umbrella policies.
Despite careful planning and coordination between policies, you may have to assume some risk yourself. Look for a feature called “first dollar defense,” which will reimburse you for the money you spend on your own legal defense for claims where you are not insured or don’t have enough business liability insurance.
Insurance companies that write umbrella and excess policies almost always have requirements before selling you primary business insurance. These may include strong financial stability ratings by firms like AM Best. Almost all umbrella and excess policies require you to carry at least minimum primary limits. Most companies use standardized policy forms that use Insurance Services Office language.
Umbrella and excess purchases have to be carefully planned to get the most complete protection for the lowest rates. Only consider quality companies and make sure you have the appropriate policy limits.
When shopping for business liability insurance quotes, be prepared to answer questions about your business, its assets and contractual obligations. All of these factors help your agent suggest the right policy for the best price.
Excess and umbrella policies are fairly cheap. Plan on spending an additional 5 to 8 percent of your primary premium on these policies.
