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Should You Buy An Umbrella or Excess Policy?

Should You Buy An Umbrella or Excess Policy?

When purchasing liability policies, the large limits of coverage such as $1,000,000 per occurrence and $2,000,000 aggregate may seem like enough. However, in certain circumstances, these limits may not be adequate.

While some insurance companies may allow you to increase these limits, that is often the upper limit for most companies. In order to increase these limits you would need to purchase an umbrella or excess liability policy.

When Should You Buy This Coverage?

Umbrella or excess liability, like other insurance, should not be purchased after a claim has occurred. The policy is usually triggered by bodily injury or property damage that occurred during the policy period.

Serious accidents happen. Between legal fees and claims payouts, a liability policy per occurrence or per claim limit can be easily exhausted. Umbrellas and excess policies can pick up where the underlying policy leaves off.

What Is the Difference Between Umbrella and Excess?

Some brokers use these terms interchangeably, but there are differences between umbrella and excess liability policies.

Umbrella policies pick up where liability policies leave off. In addition, they may offer drop-down or gap coverage in the event of a claim where the underlying liability policy does not offer coverage. These policies typically cover over more than one line of underlying coverage.

Excess policies do not offer drop-down or gap coverage, but cover the same things the underlying liability insurance covers, in the event the liability policy limits are exhausted. These policies only cover over one underlying policy, usually the General Liability.

For either type, it is important that these policies “follow form”. This means the umbrella or excess policy mimics the underlying policy coverage and exclusions. If the underlying policy offers additional insured or waiver of subrogation, a follow form umbrella or excess liability policy will, too.

There are many other coverage factors to consider, so talk to your broker about what coverage is right for your business.

Most umbrella or excess policies will offer coverage over Commercial General Liability, Commercial Auto and Workers Compensation. Coverage may also be extended over Professional Liability, D&O and EPLI policies. Check with your broker.

How Much Coverage Should You Buy?

The rule of thumb when purchasing insurance is that you should always buy as much coverage as you can reasonably afford. This amount may vary from insurance company to insurance company, so it is important to shop around, as well as comparing coverage from policy to policy.

Another way to determine how much coverage you need is to look at your existing contracts, as well as those pie-in-the-sky contracts you would like to obtain. What limits of coverage do they require? Purchasing that amount or more will eliminate the scramble to obtain proper coverage later.

The experienced brokers at Hayes can help you determine how much additional coverage you will need for your business. Contact us today for a free, no-obligation risk management analysis.

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