Caleb Meriwether, Haven Insurance Partners, visits with Dan Reaves, host of ‘The Dan Reaves Show,’ today, and each Wednesday at 3:30 p.m., to discuss all things insurance.
When it comes to protecting your personal or business assets, basic liability insurance often isn’t enough. That’s where umbrella and excess liability policies come in. While these two coverages are often confused, they serve different roles and provide different types of protection. Here’s what you need to know.
What Is an Umbrella Policy?
An umbrella insurance policy provides broader liability protection that extends beyond the limits and scope of your primary insurance policies—such as auto, homeowners, or general liability insurance. Think of it as a back-up plan that steps in when your underlying coverage is maxed out.
Example –
Suppose you’re involved in a serious auto accident and are found liable for $1 million in damages, but your auto policy only covers up to $300,000. An umbrella policy could cover the remaining $700,000—plus legal defense costs, if applicable.
Umbrella policies may also –
- Cover claims not included in your primary policies (e.g., libel, slander, or false arrest)
- Offer worldwide protection, depending on the policy
- Include defense costs, even if the lawsuit is groundless
What Is an Excess Liability Policy?
An excess liability policy also provides additional limits above a primary policy, but it is more limited in scope. It only increases the coverage limit on specific underlying policies and typically does not broaden coverage or fill in any coverage gaps.
Key Differences –
- Excess liability follows the terms and conditions of the underlying policy exactly—it’s “follow form” coverage
- It does not add new types of coverage, just more dollars
- Legal defense costs may or may not be included, depending on how the policy is written
Umbrella vs. Excess: At a Glance
| Feature | Umbrella Policy | Excess Liability Policy |
|---|---|---|
| Adds Additional Coverage Types | Yes (e.g., personal injury, libel) | No – follows the underlying policy |
| Extends Limits Above Underlying | Yes | Yes |
| Legal Defense Coverage | Often included, even outside limits | May or may not be included |
| Broader Than Underlying Policy? | Yes | No |
| Applies to Multiple Policies | Often covers auto, home, GL, etc. | Usually tied to a single policy |
Which One Do You Need?
If you simply need higher liability limits and are comfortable with your existing policy terms, excess liability might be the right fit. But if you’re looking for a wider safety net—especially one that can cover gaps and unforeseen exposures—an umbrella policy offers more peace of mind.
For business owners, an umbrella policy can be especially valuable when your operations carry exposure to lawsuits, reputational risk, or high-dollar claims.
Final Thought
Both umbrella and excess policies can play critical roles in your risk management plan. The key is understanding your existing coverage, your risk exposure, and what you’re trying to protect. Work with a trusted insurance advisor to determine which solution is best for your personal or business needs.
