What Is Excess Liability Insurance?
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Excess liability insurance is a type of insurance policy that provides higher coverage limits when placed on top of an original, primary policy. The purpose of excess liability insurance is to close any gaps in coverage and provide an extra layer of protection should the primary insurance, such as a general liability policy, be exhausted. When an insurance claim gets made a report is sent to the insurance company. And the primary insurance covers all the financial losses and damages. But if the insurance claim exceeds the policy limits of the primary policy, excess liability insurance steps in and pays the remaining costs of the claim. Let’s take a closer look at the ins and outs of excess liability insurance.
How It Helps
An excess liability insurance policy can help you in a number of ways. An excess liability insurance policy covers you in the case of a lawsuit and other legal expenses when a primary policy is exhausted. It also covers you in cases of property damage and bodily injury. An excess liability insurance policy could provide additional protection for a commercial auto policy. A policy works by providing additional liability protection on top of a primary insurance.
How It Won’t Help
An excess liability insurance policy excludes any claims that the primary insurance doesn’t cover. So if there is a claim that is outside of your primary liability coverage it is outside the scope of your excess liability insurance policy as well.
An excess liability insurance policy does not apply to multiple policies. So it has one primary policy that it can be applied to, such as a general liability policy or a commercial auto policy. As noted above, excess liability insurance provides an extra layer of insurance to the covered primary insurance. Let’s look at an example.
Example of Excess Liability Insurance Protection
Here’s an example of how an excess liability insurance coverage works. Let’s say a customer falls and hurts his back while visiting your business. He is unable to walk without assistance and wants a $1 million settlement. Your general liability policy covers $500,000. And you’ll still need to pay another $500,000 to cover his claim. The money could come out of your own pocket. But fortunately for you, you have excess liability insurance with $1 million limits. That’s enough to pay for the remaining $500,000 for the claim and still have $500,000 for claims in the future.Thanks to an excess liability insurance policy a precarious financial situation is solved.
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How It Compares to a Commercial Umbrella Policy
A commercial umbrella insurance policy works much the same way an excess liability insurance works. A commercial umbrella policy steps in when a primary insurance coverage has reached its limits.
But unlike an excess liability policy, a commercial umbrella policy can be applied to multiple primary policies and it also covers claims not included in primary policies. An umbrella policy also requires a self-insured retention (SIR) to cover insurance claims. A SIR is the amount you need to pay before an insurance company responds to a loss.
Let’s say you have a commercial umbrella policy with a $10,000 SIR. And you need to make a $50,000 claim. You first need to pay the $10,000 SIR and then the insurance company will cover the remaining $40,000 in claim cost.
Examples of Primary Insurance Policies
Before you can purchase an excess liability insurance policy, you need to purchase the primary insurance policy. Two such policies are general liability insurance policies and commercial auto policies. Let’s take a closer look at each of these policies.
General Liability Insurance
General liability insurance protects you if you cause any damage, whether it be bodily damage or damage to the client’s or other’s property. This insurance provides your business with financial protections should you be hit with a legal claim. Accidents, injuries, claims of negligence all can happen and general liability insurance is one way to be protected. General liability insurance is typically structured to cover financial settlements as well as the legal costs involved with defending lawsuits.
Events covered by liability insurance include accidents and injuries that occur on business property or stem from its business operations, medical payments for minor injuries sustained by visitors to company property and liability damage to another’s property in the course of doing business.
Most employers require general liability insurance. So if you have a small business, employers would want you to have general liability insurance before signing contracts and doing business with you. So don’t delay in signing up for this insurance. You need it for doing business.
Want even more protection? You can get more liability coverage by adding excess liability coverage on top of a general liability policy.
Commercial Auto Insurance
If you or any of your employers use a motor vehicle for company purposes then a commercial auto policy should be added to the insurance that you buy for your business. This insurance will protect you should an accident happen with the vehicle and you or your employees are found to be at fault. A commercial auto insurance policy covers the motor vehicles that you own, lease or rent for your business. A standard auto policy will not cover you if you are in an accident while in transit from conducting business. So don’t delay in signing up for a commercial auto insurance policy for your business. The limits of this important insurance coverage can be extended with excess liability coverage.
What to Do About Multiple Policies?
What should you do if you have multiple commercial policies that you would like to protect with extended insurance coverage? A commercial umbrella policy may be the policy for you. It provides protection for insurance policies including workers compensation and employee benefits liability protection and the already mentioned general liability and commercial auto coverages.
Let’s look at what workers’ compensation and employees benefit liability insurance entails.
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If you’ve got employees, workers’ compensation is a must for your business and it is required in most states. Workers’ compensation offers insurance coverage for when employees become ill or injured on the job. Workers’ compensation covers employees’ medical costs and a portion of their lost wages.
Employees Benefit Liability Insurance
Employee benefit liability insurance provides coverage for errors or omissions in the employer’s administration of its employee benefit program. For example, this coverage would pay for benefits that would have been payable under the health insurance plan except for an employer’s error. This coverage applies to a wide range of employee benefits including health insurance, life insurance, disability insurance, retirement plans and other plans administered by employers. So if you have more than one insurance policy that you would like to extend coverage for, a commercial umbrella policy might be the answer. But if you prefer extending just a single primary policy at a time, an excess liability policy may be right for you.
As noted above, the other key difference is an excess liability policy does not cover events beyond the primary insurance policy’s limits. But a commercial umbrella policy will cover events beyond the primary policy. So the scope of a commercial umbrella policy is wider than the scope of the excess liability policy.
So weigh the pros and cons of excess liability policies and commercial umbrella policies carefully. Both are designed to give you an extra layer of protection beyond your current insurance policies.