Excess or Umbrella Insurance: Find Out Which is Better for You
Although you already have an insurance policy in place, there is a chance there are gaps in your coverage and you need more insurance to cover these gaps. You can cover these gaps with an excess policy or an umbrella insurance policy.
In this article, we are going to guide you through an example to help you figure out whether excess or umbrella insurance is better for you. First, you need to understand what an underlying insurance policy is.
What is an Underlying Policy?
An underlying policy is the first policy put in place to protect you from damages or losses.
There are two things all underlying insurance policies have:
- Scope of Inclusion: What the policy covers. For example, a policy could stipulate that only events occurring at a particular location receive coverage.
- Financial Limits: How much financial coverage you will receive in the case of loss. If your policy has a $500,000 limit, you will only receive up to that amount and the rest of the damages will be paid out-of-pocket.
When your policies’ scope of inclusion or financial limits is too low, there will be gaps in your coverage. In this case, you need to add either excess or umbrella coverage to your insurance policy.
Assess Your Situation
Imagine you buy your underlying policy. An underlying policy could be anything from general liability insurance to more specialized policies like contractor pollution liability insurance. In our example, the policy you buy only covers accidents that occur on your business’ property and has a limit of $800,000.
This coverage seems reasonable, but as time goes on you realize you have been sending a lot of employees out to run errands. You think about what would happen if an employee gets into an accident while they are out on an errand or what if the damages of an accident happening on-site exceed $800,000.
In these scenarios, you realize you do not have full coverage under your insurance policy. Because of this realization, you look for more coverage options. You find two options: excess coverage and umbrella coverage.
What Does Excess Insurance Cover?
Excess insurance coverage increases the financial limits of your underlying policy.
So, in your search for more coverage, you find a provider who will give you $200,000 in excess coverage. This brings your limit up to $1 million for accidents.
Adding this excess coverage to your policy will cover you for up to $1 million in damages for accidents that occur on the business property. It is important to remember, anything exceeding $1 million will be paid for out-of-pocket and this coverage is only afforded to accidents that happen at the location stated.
What is Covered Under an Umbrella Policy?
In our scenario, adding the excess coverage helped you prepare for any damages that occur on site, but what about those employees who are always out running errands for you? This is where umbrella coverage comes into play.
Umbrella coverage expands a policy’s terms while also covering claims exceeding the financial limits of the underlying policy.
So, imagine an accident occurs while an employee is out running errands for you. With your new umbrella coverage in place, the accident is covered even though it occurred off-site. If the accident exceeds your $800,000 limit, it will also cover you in the excess.
Deciding Which is Better for You
Figuring out whether excess or umbrella coverage is better for your business depends on your line of work, what needs coverage, and how much accidents cost on average.
No matter what type of added coverage you decide is the best for your business, you need a system in place to make sure everybody you are working with also has their own insurance coverage.
If you are unsure how to keep track of the policies of third-parties you work with, give us a call, or check out our website to find out how this can easily be done!