What Is the Difference Between Umbrella and Excess Liability?

While both umbrella and excess liability policies provide an additional layer of liability coverage, there is a fundamental difference in how they work and the scope of their protection. Understanding this difference is crucial for an individual or a business that wants to ensure they have the right amount of protection from a catastrophic lawsuit.

Excess liability insurance is a much more straightforward policy. It simply provides an additional layer of coverage that “sits” on top of a single, specified primary policy. It does not provide any broader coverage than the underlying policy; it just increases the limits. For example, if a business has a commercial auto policy with a $1 million liability limit, and they purchase a $5 million excess liability policy, the excess policy will provide an additional $5 million in coverage for a car accident. However, it would not provide any coverage for a claim that is not covered by the underlying auto policy, such as a lawsuit for libel or slander.

Umbrella liability insurance, on the other hand, provides a much broader and more comprehensive level of protection. It “umbrellas” over a variety of primary policies, such as a homeowner’s, auto, and boat policy. It provides an additional layer of liability coverage for a wide range of perils, and it also provides broader coverage for claims that are not covered by the underlying policies. For example, an umbrella policy may provide coverage for libel, slander, or false arrest, even if these perils are excluded from the primary policies.

In summary, the key differences are:

• Scope of Coverage: An excess liability policy simply increases the limits of a single underlying policy. An umbrella policy provides a broader level of coverage over a variety of primary policies and can also provide coverage for claims that are not covered by the underlying policies.
• Underlying Policies: An excess policy is tied to a single underlying policy. An umbrella policy is tied to a variety of underlying policies, and it may require an individual to have a certain amount of liability coverage on each of them.
• Cost: An excess policy is often less expensive than an umbrella policy, as it provides a more limited scope of coverage.

For most individuals and businesses, an umbrella liability policy is the preferred choice, as it provides a much more comprehensive and broader level of protection. It is a crucial safeguard that can protect a person’s or a business’s assets from a wide range of lawsuits.