What is Underlying Policy?
According to Statista, the average cost of B2C general liability insurance premiums written in the U.S. by 2024 is projected to reach USD 380 from USD 340 in 2019.
An underlying policy is the insurance coverage against a particular risk and associated loss. Every single insurance comes with policy limits with reference to the risks it covers along with the financial coverage it provides.
The liability from accidents and incidents that fall out of the predefined parameters of the policy becomes the responsibility of the insurance borrower and not the provider.
Many policyholders seek additional coverage to mitigate the risks by purchasing excess liability insurance. The insurance policies that cover any additional risks than those covered by the underlying insurance are often termed excess insurance or umbrella insurance.
More often than not, these two terms are conflated, though they are different. Let’s have an understanding of these two insurance policies from the below-stated definitions.
| Excess Liability Insurance | Umbrella Insurance |
| Additional monetary coverage that activates when the basic liability policy exceeds its limits. | Extra coverage over the claims and damages not covered by the existing underlying insurance policy. |
In this article, we explain the excess liability insurance and umbrella insurance in detail to help you differentiate both for better decision-making.
What Is Excess Liability Insurance?
Excess liability insurance is a type of coverage that offers additional protection exceeding the limits of the underlying insurance that the policyholder may already have. It does not affect the duration or terms of the underlying policy; instead, offers extra limits.
It is a policy that extends the limit of the coverage provided by existing insurance. The excess policy does not expand your current policy coverage; instead, offers a higher limit to protect the business from damages where the claim exceeds the amount of the underlying policy.
The type of policy applies to one policy only. So, if you choose to add excess liability insurance to the general liability policy, the limit for that particular policy will be increased. This can certainly be beneficial for your business if you are operating in a risk-intensive industry.
The excess liability insurance policy is add-on protection beyond the limits that the original policy such as the commercial general liability (CGL) policy covers.
Types of Additional Coverage
Excess liability policy provides additional coverage for general liability limits and activates when the limit of the underlying insurance exhausts.
Anything that is not covered by the existing primary insurance is not covered by an excess liability insurance policy. Though the monetary limits exceed, the terms and conditions remain the same.
You will get higher limits of coverage on the general liability and workers’ compensation insurance. The industry and risk intensity play an important role in deciding the cost for excess liability insurance since the policy is designed to protect businesses from unexpected claims exceeding the limits of the underlying policy.
Accessibility
- Small business
- Homeowners
- Auto insurance
Exclusions
Excess liability coverage is limited to one primary policy and excludes coverage for claims that are, in most cases, excluded from the underlying policy.
Medical payments
The excess liability does not cover no-fault medical claims even if the type of expense falls within the scope of coverage of the underlying policy.
Portions of auto coverage
Physical damage coverage, uninsured or underinsured motorist coverage, no-fault coverage, and medical expense coverage are excluded.
What Is Umbrella Insurance?
Umbrella insurance is an additional liability coverage over and above the limit insured by the current policy. It is designed to cover large liability claims that are too big for the underlying policy to cover.
If you have multiple insurance policies through one insurance company, umbrella insurance coverage will cover all existing liability policies. It provides wider coverage on claims that are not covered by current liability insurance policies.
To become eligible to use coverage provided under the umbrella insurance policy, the policyholder must meet a unique deductible referred to as “self-insured retention.”
The safety protection in the underlying liability insurance can only stretch only to an extent that the homeowner or auto insurance covers. It helps prevent financial damage due to a tragic event for which the policyholder is liable.
Types of Additional Coverage
Umbrella liability provides broader coverage than excess liability insurance by exceeding coverage outside the scope of the underlying policy.
To get umbrella insurance, the policyholder must first own standard homeowners insurance, watercraft insurance, and auto insurance. The umbrella policy activates after the underlying coverage expires or exhausts.
The type of coverage is meant for people who own a significant volume of assets or are involved in a high-risk business. It is useful for individuals or business owners who possess a lot of assets and are prone to risks.
Accessibility
- Small business owners
- Independent contractors
Exclusions
Anything that is not covered under the underlying policy is covered by umbrella insurance. The policy usually excludes coverage for:
Bodily injuries
Umbrella coverage doesn’t cover the policyholders’ own injuries as the underlying health insurance may cover the bodily injuries.
Criminal losses
The policy doesn’t cover the damage due to criminal activities as the general liability insurance may cover any damages or losses due to criminal incidents.
Personal assets
Liability insurance will cover all personal assets so the primary insurance may provide coverage against any relevant losses or damages.
Business losses
General liability insurance or business insurance will protect against financial damages that businesses may encounter.
Property damage
Any damage to the policyholder’s own property will be covered under the homeowners’ insurance and hence excluded from the umbrella insurance.
Acquire Your General Liability Insurance through Contractors Liability
Both excess liability and umbrella insurance offers additional limits above the coverage provided by the underlying policy.
| Excess Liability Insurance | Umbrella Insurance | |
| Definition | An insurance policy that provides additional coverage in terms of monetary limits beyond the limit covered by the underlying policy. | An insurance policy that provides coverage beyond the damages and losses covered by the underlying insurance policy. |
| Additional Coverage | Business property damage, professional errors, lawsuits, and legal expenses | Bodily injury, property damage, auto accidents, employee injury |
| Accessibility | Small business, homeowner, auto-insurance | General liability insurance, auto insurance, employer’s liability insurance |
| Exclusions | Medical payments, partial auto coverage, libel and slander | Business loss, property damage, personal assets, commercial loss, criminal loss |
Want to purchase excess liability insurance or umbrella insurance for your business? Are you confused about which among the two is the best for your business?
Excess liability will provide more monetary limits with the similar terms of the underlying policy and is applicable to only one policy. On the other hand, umbrella insurance will provide broader coverage than provided by the underlying policy and applies to multiple policies.
If you’re looking to get additional coverage for any underlying policy, contact Contractors Liability’s experienced insurance consultants to assist you in your insurance purchase journey.
