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Commercial umbrella insurance vs. excess liability insurance

Though the terms are sometimes used interchangeably, commercial umbrella insurance and excess liability insurance do not refer to the same policy.

What's the difference between commercial umbrella insurance and excess liability insurance?

The policies are similar, but commercial umbrella insurance and excess liability insurance have one important difference.

  • Excess liability insurance provides additional coverage for one of your liability insurance policies, typically general liability insurance or errors and omissions insurance (E&O). It activates when that policy reaches its limit.
  • Commercial umbrella insurance provides additional coverage for several of your liability insurance policies. It kicks in when one of the underlying policies reaches its limit.

Both commercial umbrella insurance and excess liability insurance will likely have the same coverage terms, conditions, and exclusions as the underlying policy. They provide coverage when the underlying policy’s per-occurrence or aggregate limits are exhausted.

Commercial umbrella insurance can be applied to the following policies when their limits are reached:

These policies protect small businesses from catastrophic losses. By adding more coverage when your liability policies are maxed, umbrella and excess liability insurance reduce the chance of an escalating lawsuit bankrupting your business.

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Who needs commercial umbrella / excess liability insurance?

Most small businesses purchase commercial umbrella insurance or excess liability insurance to fulfill a client's requirements for a certain amount of coverage. Typically you'd buy up to $2 million of the underlying coverage, and then add umbrella or excess insurance to meet requirements for higher limits.

Umbrella insurance costs about $40 per month for each additional $1 million of coverage.

Small businesses that benefit from this coverage:

  • Face high liability risks, such as a business location with substantial foot traffic
  • Must carry high liability limits to work with a particular client
  • Need greater liability protection

How do commercial umbrella and excess liability coverage work?

How do these policies play out? Say you have an excess liability policy that extends the coverage of your general liability insurance. If you’re found liable for $2.5 million in damages, and your general liability policy only covers $2 million, your excess coverage would pay for the remaining $500,000.

But it would only apply to one underlying policy. You wouldn’t be able to apply excess liability coverage that supplements your general liability policy to a claim on a different policy.

Now, let’s say you have a commercial umbrella policy. In that case, you are now covered for claims on your general liability insurance, hired and non-owned auto insurance, and employer's liability insurance that exceed the underlying policy limits.

The bottom line is, you can’t predict the future. The best time to prepare for risks is before mistakes or mishaps occur. Don’t wait too long to get the coverage you need to protect your employees, clients, and company assets.

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Updated: June 30, 2022
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