The general liability limits of a business insurance policy might not always cover large claims. In these circumstances, business insurance policyholders rely on the extra security offered by an umbrella or an excess liability insurance policy.
Excess liability insurance is described here, along with What it covers, how it varies from umbrella insurance, how it works, and how to decide if it’s suitable for your business. You can also find information on general liability insurance here.
What Is Excess Liability Insurance?
Excess liability insurance can be purchased to increase another underlying policy’s coverage levels. However, it is most frequently seen as an addition to a general liability insurance policy, even though it can also increase business vehicle liability policies. Excess insurance can be viewed as a “second-in-line” policy, with claims only being processed after the underlying liability insurance’s maximum limit has been met and exceeded.
How Does Excess Liability Insurance Work?
An excess liability insurance coverage is inactive until the underlying policy’s limits are met. Once the coverage limits of the underlying policy are reached, the additional liability insurance policy will go into force. When it kicks in, the excess liability insurance will cover the total amount of the contract.
It is less likely that your company will be underfunded if you have additional liability insurance. Still, it does not guarantee you will never have to pay out of pocket. You might still be liable for the difference if a claim surpasses the limits of the excess and primary insurance policies.
Example of Excess Liability Insurance
Imagine that the per-occurrence limit on your general liability insurance is $1 million. You also have additional liability protection with a $1 million cap. You now have a $2 million available risk cap.
Imagine one of your client’s trips and falls on your company’s land, sustaining a concussion with long-term neurological effects. You are facing a $1.5 million lawsuit. General liability insurance would provide security for the first million dollars, and excess insurance would cover the remaining $500,000.
The first million would be covered by standard liability insurance dollars of a $3 million claim, the excess liability insurance would cover the second million dollars, and your business might still be liable for the third million dollars.
Advice: Although you should search for enough insurance to protect your company from the most common claims, you cannot foresee every risk and guarantee it will be covered. Strike a balance between costs and protection while considering that a sizable share over the policy limits is possible.
Umbrella Liability Coverage vs. Excess Liability Coverage
Excess and umbrella liability insurance increases a plan’s level of risk protection. In contrast to excess liability insurance, which is intended to supplement just one underlying policy—typically general liability, though it may also cover commercial auto—umbrella insurance generally covers multiple underlying policies.
Both excess liability and umbrella insurance plans will typically uphold the terms and conditions of the underlying insurance policies, including the underlying policy’s restrictions.
So as you know, umbrella and excess liability policies require you to have at least one primary underlying insurance. Examples of two or more base policies that support umbrella policies include general liability and commercial auto insurance.
Do You Need It?
Consider your company’s risks as well as the best amounts of coverage when deciding whether to purchase excess liability insurance. In the unlikely event that your general liability insurance coverage is inadequate, it exists to protect you.
Consider the following inquiries to discover more about your company’s advantages:
- Does your business serve a substantial clientele?
- Is there a greater risk of doing business in your industry?
- Does your business use heavy machinery or manufacturing tools?
- Can you increase your general liability insurance at a reasonable cost?
- Does your business have enough funds on hand to cover sizable claims?
- Do you need higher risk limits to satisfy the demands of a particular client?
The larger and more consumer-facing your business is, the greater the likelihood that you will need excess insurance coverage. Higher liability limits should be carried by companies that encounter greater risk, such as those that use large machinery and equipment.
Conclusion
Excess liability insurance is a valuable form of protection for businesses and individuals. It provides additional coverage beyond what the underlying policy offers, allowing you to protect yourself against greater financial losses in the event of a lawsuit or other covered claim.
While this type of insurance may not be necessary for everyone, it is important to understand its coverage and the potential risks it protects against. Excess liability insurance can provide valuable peace of mind with the right coverage.
Pascal Burke Insurance Brokerage Inc. specializes in various policies covering general cases and specialty contractors. Contact us for general liability insurance in Charleston, SC!