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What is Umbrella and Excess Liability Insurance?


Umbrella and Excess Liability Insurance policies are fundamentally different layers of insurance above and beyond a primary commercial insurance policy. Although they are quite similar, umbrella and excess liability insurance are different types of commercial insurance; and here, we explain the differences between both.

What does a business umbrella policy cover?

Essentially, umbrella insurance is a type of excess insurance policy. It works in a very similar way to a commercial excess liability insurance policy. However, there are some key differences.

A commercial business umbrella policy can:

  • Provide coverage for any claims that are not otherwise included in the underlying insurance policies.
  • It is applicable to numerous underlying commercial liability insurance policies
  • It can drop down when the aggregate limits of any underlying policies have been exhausted.

In order for a business umbrella insurance policy to cover any claims beyond those which are typically included in any underlying insurance policy, you will need to pay for something called self-insured retention, also referred to as a ‘SIR.’

What is Self-Insured Retention - SIR

Self-insured retention is the volume of money that a person will need to pay out prior to any insurance company responding to a stated loss. For example, if you buy an umbrella insurance policy that has a SIR valued at $50,000, and a claim is made for a total amount of $200,000; you will need to pay out $50,000 towards to cost of the claim, and the insurance company will then pay the remaining amount.

What does a commercial excess liability policy cover?

A commercial excess liability insurance policy provides coverage when an underlying business liability policy has reached its policy limitations. For instance, you could buy a commercial excess liability policy that extends the coverall of your general liability insurance policy. One crucial factor to remember about buying commercial excess liability insurance is that it is only able to be applied to a single underlying insurance policy.

The Difference Between Umbrella and Excess Liability Coverage

It’s easy to understand why people often think that excess liability coverage and commercial umbrella insurance are the same. Essentially, they will both take care of additional coverage requirements for at least one underlying business liability insurance policy. Both are fundamental in the provisions they offer to help businesses cover losses that exceed the policy limits of any standard commercial liability policy.

However, the critical difference between an umbrella and excess liability insurance is that there is no SIR to be paid with excess liability coverage, and an excess liability policy will only cover a single underlying insurance policy. In contrast to this, a commercial umbrella insurance policy can cover multiple underlying liability policies, and it can also cover any claims that not included with your existing underlying commercial insurance policies. With commercial umbrella coverage, you will also be required to paying a SIR.

What type of liability policies can be extended with umbrella and excess liability insurance?

Both excess liability and commercial insurance can be applied to an employer’s liability insurance policy, general liability insurance, and commercial auto insurance. An umbrella insurance policy will not extend the limits of your professional liability insurance policy.

Getting Quotes for Umbrella and Excess Liability Insurance

As you will appreciate, excess liability and umbrella insurance are different, but they both have their place in forming the best type of commercial insurance package for your business. Speaking directly with an experienced commercial insurance agent can help give you the clarity you need in decided whether you need to buy an umbrella or excess liability coverage for your business.


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