Published August 20, 2018 • 2 minute read
Excess insurance provides additional limits above those covered by the underlying policy.
Unlike umbrella policies, excess insurance does not expand the terms, or scope, of the underlying policy, but rather, bestows higher limits to safeguard against unforeseen, catastrophic claims and loss.
Excess insurance would help contractors avoid the situation outlined in Scenario 2 above: By extending their insurance to cover job-site accidents up to, say, $2 million, the contractor in that scenario would not be responsible for the excess $400,000 payment.
A form of excess liability insurance, umbrella policies cover claims exceeding the limits stipulated by the underlying policy's terms, while also providing broader coverage encompassing losses outside of those outlined within the initial policy.
The typical example is that an umbrella policy may cover auto liability in a foreign country even though the commercial auto policy does not extend it’s territory to foreign countries.
Umbrella insurance thus helps close any outstanding liability gaps.
In the examples above, umbrella insurance would have helped the contractor in Scenario 3 to protect themselves: They could have purchased an umbrella policy that covered extra eventualities not specifically related to the job site.
Another term you'll likely hear regarding liability insurance is Self-Insured Retention, commonly referred to as SIR.
What is Self-Insured Retention? This is a specific amount the insured must pay to a claimant before the liability insurance policy will address any losses.
- Excess insurance does not affect the terms of your underlying policy, but instead provides additional limits.
- Umbrella insurance is a broader type of excess insurance that can additionally cover situations outside the scope of the underlying policy.