When someone picks a policy to cover their assets, they might come across two terms: excess and umbrella. This guide focuses on these types of policies, their differences, what they are, and who could get them.
A General Overview of Both Options
Regardless of the industry they belong to, businesses need to work with an insurance company to get the coverage they require. In case of any accidents, the money can help the owners cover the damages that occurred.
Nonetheless, regular insurance policies have their limits. When damages exceed the mentioned boundaries, owners can consider other alternatives. This is where excess liability coverage and the umbrella insurance policy come in.
The umbrella and excess liability policy offer extra coverage, and this can go above the limits of the underlying policy.
Both options are supposed to be an alternative to the underlying insurance coverage that the business already has. In some cases, they can even provide coverage if the person does not have an underlying policy. Nonetheless, they only work on particular situations, for example, death or crucial injuries.
What Is Excess Liability Coverage?
An excess liability insurance policy is a type of insurance that offers certain limits. Liability insurance often provides people with more protection than the person's underlying policy.
Generally speaking, liability insurance has one primary purpose: to help close the gaps regarding coverage and provide protection if the person's current underlying liability policy does not provide them with any more options.
To put it differently, excess liability insurance works as if the client takes an insurance plan for their underlying insurance policy. If the primary policy reaches its limits, then the excess insurance can cover the expenses.
However, there is something for people to keep in mind: they can only use excess liability policies with one underlying insurance policy.
Suppose that one person has multiple insurance policies through one company. If they have an excess liability insurance policy that covers their home, it's not going to carry to their car. Thus, they must take out an additional policy if they want to protect it as well.
Who Can Get an Excess Liability Policy?
A lot of people can get an excess liability policy, but not everyone needs it. Clients must remember that it's only an option in case the underlying coverage is not enough for all the expenses in a particular situation.
Excess insurance policies are available for most clients, but they might be particularly useful for people who have a lot of assets and may face a lawsuit.
If the person does not have a lot to protect, they might not need broader coverage than they already have.
Alternatively, this type of policy is also very beneficial for workers who live in homes with a high risk of damage, or when they face potential litigations.
What Is the Umbrella Insurance Policy?
Similar to the excess policy, an umbrella insurance policy can provide coverage above the person's current policy.
The umbrella liability policy is an alternative that follows an auto insurance policy, and its design is meant to allow people to add more policies to it.
Therefore, it doesn't only provide higher limits but also works alongside auto insurance policies to protect the person against crucial claims that they would not be able to handle without higher liability limits.
When someone gets umbrella policies, they are able to add other policies to them. A fantastic example of this is to get watercraft, homeowner's insurance, RV, and ATV policies.
On most occasions, the umbrella liability insurance policy covers various situations. Personal and bodily injury claims, landlord liability, and property damage are some examples. However, a commercial umbrella liability policy does not provide additional limits for the following situations:
Business losses
Personal belongings
Written or oral contracts
Criminal or intentional acts
Understanding how umbrella policies provide people with insurance coverage is essential when someone requires higher liability limits. Nonetheless, it could be beneficial to know the instances in which this type of policy cannot give them additional coverage.
Who Should Have it?
In some cases, umbrella coverage might be more convenient, especially when handling liability exposures if the person is afraid of being sued.
In other words, umbrella coverage is one way to go when people are afraid of being sued and losing their assets. This can happen to a lot of individuals when they're business owners, but small businesses might not be able to afford additional layers of coverage.
Experts often recommend that the business owner gets general liability coverage and an umbrella policy if their net worth is over $1 million. On some of these excess policies, this is the minimum amount.
What Does it Mean to Stack the Limits of the Insurance Policy?
Stacked limits are one idea when the person has taken out multiple policies to get protection. When damages occur and they incur over two or more policy periods, the person can apply each initial policy to the loss. This is known as 'stacking the limits.'
However, some insurers are against this practice. Therefore, the person might want to check with a professional before trying it.
Main Differences
There are key differences between umbrella and excess liability policies. Even though they can both provide increased limits and offer coverage when the person needs it, they are not the same.
The main difference between these two alternatives is that excess policies offer limits above the ones that the underlying policies give the person. Nonetheless, umbrella policies broaden coverages, or in other words, it extends the territory of this extra layer of protection.
Which Policy Should the Person Get?
Asides from wondering how much coverage the person can get with a specific type of policy, wondering which one they should get is the second most frequently asked question.
The person should remember that both excess and umbrella policies' design helps specific types of people, and they're not for everyone. At the same time, the amount of coverage they provide depends on the insurance company the client is working with. Experienced retirement financial advisors in Pittsburgh from the Kelley Financial Group are ready to help clients when they choose the type of insurance policy they want. They also help with other concerns, such as how long before FDIC has to pay you back or learning more about the retirement bucket strategy.
While excess policies are ideal for people with many assets and want to protect them, umbrella liability is beneficial for those with a high net worth, especially if they're worried about getting sued.
*This material was prepared for The Kelley Financial Group.
*This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not consider your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.