Does My Business Need Excess Liability Coverage?
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If you have a commercial liability policy like general liability insurance, you can buy excess liability coverage to increase its limits, ensuring you’re covered for high-cost claims. Excess coverage is highly recommended if your business operates within a high-risk industry and is vulnerable to costly lawsuits.
Read how much coverage costs and how you can get extra protection.
What Is Excess Liability Insurance?
Excess liability insurance is a type of commercial insurance policy that provides higher liability coverage limits on top of another liability policy. Its function is to provide an extra layer of protection should the limits of the underlying policy, such as a general liability policy, be exhausted.
How Does Excess Liability Coverage Work?
When you’re shopping for excess liability insurance, you’ll come across the term “underlying policy.” This simply means the policy that the excess liability policy is covering, with common types being general liability, professional liability and commercial auto insurance.
When an insurance claim is made, a report is first sent to the insurance company of the underlying policy. The policyholder then pays the deductible for the underlying policy (if there is one) and the insurer covers all the financial losses and damages up to that policy’s limits.
But if losses are substantial and exceed that primary policy’s limits, excess liability insurance steps in and pays the remaining costs of the claim. Deductibles typically don’t apply with excess liability policies but if they do, you would have to pay that before your coverage kicks in.
Excess Liability Coverage Example
Let’s say a customer falls and hurts his back while visiting your new business. He cannot walk without assistance and wants a $1 million settlement, which you’re on the hook for. However, your general liability policy only covers up to $500,000 in losses. You’ll still need to pay another $500,000 to cover his claim. The money could come out of your own pocket.
Fortunately for you, you have excess liability insurance with a $1 million limit. That’s enough to pay for the remaining $500,000 for the claim and still have $500,000 for claims in the future.
What’s the Difference Between Excess Liability and Umbrella Insurance?
Commercial umbrella insurance functions similarly to excess liability insurance with coverage scope being the distinguishing factor. The additional protection that excess liability insurance provides is only for a single, specific insurance policy, whereas umbrella insurance can provide coverage for several underlying policies, such as commercial auto insurance, general liability insurance and errors and omissions insurance.
In some cases, umbrella insurance may even cover a claim otherwise excluded by the underlying policy. However, before this coverage kicks in, you will usually need to pay a self-insured retention (SIR), which is similar to paying a deductible. A major difference is that a standard deductible counts toward your policy’s limits, whereas an SIR does not.
What Does Excess Liability Insurance Cover?
Excess liability insurance extends the coverage limits of the specific commercial liability policy it's tied to. Let's look at some of the most common forms of liability insurance and how an excess liability policy can boost your coverage:
- General liability: Things like bodily injury, personal injury and property damage that occurs to others on your business property are covered by general liability (see the above example). Your excess liability policy will extend the limits of your general liability just in case someone litigious trips over the carpet at your business and decides to sue.
- Professional liability: Also called errors and omissions (E&O) insurance, this coverage protects your business if it or you are accused of negligence or defamation (liability and slander) in your professional dealings. So, if you've printed something about a competing dog grooming business that happens not to be true, you can rest easy knowing your excess liability insurance will provide you with all the financial protection you'll need in case your E&O coverage maxes out.
- Employer liability: Any work-related accident that causes an employee injury or illness is covered by employer liability should an employee sue the company for damages. Typically this coverage is included in workers' compensation. Excess liability will handle any remaining costs if your policy limits are reached.
- Commercial auto liability: Claims arising due to vehicular negligence (bodily injury and property damage) are covered by general auto liability. Excess liability extends the limits for your company's vehicles which can be particularly advantageous if the company vehicle is large and causes a massive car accident.
What Isn’t Covered?
Excess liability is only as good as its underlying coverage so anything the primary policy excludes, your excess liability policy will also exclude. Exclusions will usually include:
- Intentional acts and willful misconduct
- Criminal activities and illegal acts
- Workers' compensation claims
- Pollution and environmental damage (unless included in your policy)
- Employee-related claims like wrongful termination or discrimination (may require separate coverage)
- Losses from war, terrorism or civil unrest
How Much Does Excess Liability Insurance Cost?
Generally, business owners can expect to pay $1,000 for every $1 million in excess liability coverage. So, if you have a policy with a limit of $2 million, you’ll probably be paying somewhere around $2,000. Pricing is subject to variability based on factors such as your company's risk level, industry affiliation and desired coverage amount.
How Do I Get Excess Liability Coverage?
To obtain excess liability coverage, you can follow these steps:
- Evaluate your existing insurance policies: Determine if any limits may expose you to potential risks beyond your primary policy.
- Assess your risk profile: This assessment will help you determine the appropriate level of excess coverage you need.
- Research insurance providers: Consider their expertise, financial stability and customer reviews to ensure they are a reliable choice.
- Request quotes: Provide carriers with detailed information about your business, risk profile and desired coverage limits.
- Compare coverage options: You can easily do this with SmartFinancial by plugging in some quick information and in moments you’ll get several quotes from providers in your area. Pay attention to coverage limits, exclusions and any additional benefits or services offered.
- Customize your coverage: Ensure that the coverage adequately addresses your risk exposures and complements your existing liability insurance.
- Understand the terms and conditions: Seek clarification from the insurance provider if you have any doubts or concerns.
- Finalize the policy: Once you are satisfied with the coverage and terms, complete the necessary paperwork, provide the required documentation and make the premium payments to secure your excess liability coverage.