What is the Difference Between Excess Liability and Umbrella Policies?

Insurance policies can be confusing and overwhelming even at the best of times. In particular, umbrella insurance and excess liability policies are frequently confused but they are actually two different types of insurance policies. Contractors should consider investing in both types of coverage depending on the level of coverage they need for their particular business. In our blog, we’ll cover what is an underlying policy, what are excess liability policies, and what is umbrella insurance so that you can make an informed decision about what types of coverage you need for your business. 

What is An Underlying Policy? 

Before we can begin to unpack umbrella insurance and excess liability policies, it’s important to first understand what an underlying policy is. Essentially, an underlying policy is the initial insurance coverage a contractor purchases to protect against certain risks and address those associated losses. No matter what type of insurance policy you are purchasing, every policy has its individual scope of protected risks and financial limits. Any liabilities from an incident that is not included in the scope of the particular policy become the responsibility of the policyholder and not the insurer.

For example, if a contractor has purchased an insurance policy that covers job-site injuries with damages up to one million dollars, but the damages are assessed at $1.4 million. The contractor’s insurance policy would cover the first one million dollars, but the contractor would then be responsible for the other $400,000. If a contractor wanted to make sure that they would not have to be personally responsible for any amount of money after an incident, that’s where excess liability policies and umbrella insurance comes into place. 

What Are Excess Liability Policies? 

An excess liability policy for a contractor gives that contractor additional financial limits that aren’t covered by their first insurance policy. Unlike umbrella insurance, excess insurance doesn’t expand the scope of the underlying policy. Instead, this type of insurance expands how much money the insurer will cover for unforeseen or catastrophic loss. Using the example above, if the above contractor had excess insurance that went up to two million dollars, that would ensure the contractor that they were not responsible for the $400,000. 

What is Umbrella Insurance? 

So, what do umbrella liability policies cover? Unlike excess liability policies, an umbrella insurance policy helps cover a person from claims that go beyond the limits of the underlying policy while also providing additional coverage that includes losses outside of those that were defined within the initial policy. For example, a person could purchase auto insurance for their car in the United States, but they also purchase an umbrella auto liability policy that would cover that person while driving in a different country. In essence, umbrella insurance covers any gaps that may not be covered by the underlying insurance policy.

If you’re a contractor and are still a bit confused about what types of insurance policies you need, or would be best for your business, then it’s best to speak to an experienced insurance professional. At Dunham Insurance, no matter what type of insurance coverage you need, we take the extra time to ensure that you completely understand your coverage and that it fits your needs perfectly. As an independent insurance agency, we are able to provide our customers with bespoke packages. Our objective is always to reduce our client’s insurance costs by providing quality business, home, auto/marine, commercial, and personal umbrella policies. Contact us today to discuss your insurance needs!