Umbrella vs. Excess Insurance... Whats the Difference?

At the most fundamental level umbrella and excess policies provide an additional layer of insurance, above primary limits. Such policies are designed to protect you if you suffer a claim that exhausts the limits of your primary insurance policy. For instance, if you have a general liability policy with a $1,000,000 per occurrence limit and a claim occurs that costs $1,500,000 to address you could find yourself on the hook for $500,000 worth of claims.

However, a $1,000,000 umbrella policy above a $1,000,000 primary would provide you with a limit of $2,000,000 per occurrence... So, in the above example, you'd have $500K of additional insurance left over in a $1,500,000 claim situation.

However, umbrella and excess policies are different.

Umbrella policies may provide broader coverage in addition to increasing the limits of coverage in the underlying policy. Umbrella policies may also cover more than one underlying policy, including CGL, commercial and/or hired-non-owned auto, employers liability, etc. In the event that an umbrella policy is providing broader coverage than an underlying policy, there will typically be an additional deductible or self-insured retention that the insured is required to pay before broader coverage will kick in.

Excess policies also provide additional limits above an underlying policy, but don’t broaden the scope of coverage. Excess policies typically sit above a single policy, not multiple policies.

Both commercial umbrella and excess policies may also have narrower coverage than underlying policies if there are exclusions in the policies.

In the world of excess and umbrella, you may hear the terms “open peril” or “follow form”.

According to IRMI, follow form means when an umbrella policy provision follows the underlying policy as to how the provision applies. Follow form also identifies an "excess" liability policy that follows the underlying policies for most policy provisions. The policy may stand alone for certain exclusions, conditions, etc., while relating back to the underlying coverage for most provisions. This type of policy form is typically used excess of scheduled underlying insurance and usually contains a requirement that the insured maintain scheduled underlying insurance.

[pnarsoysal]

We are in the process for our commercial rental property. Really helpful video, thanks!

[crystalwaters]

Thank you! I have my property and casualty exam to get licensed in two days and these were really throwing me off, this deserves more attention!

[shantilllylace]

Okay, riddle me this.

On an umbrella, the insured is only required to pay their SIR in the event that the umbrella drops down and becomes primary coverage. If the umbrella limits provide coverage on an excess/secondary basis, the SIR does not apply.

When would an insured be required to pay their SIR on an excess policy? An excess policy would never drop down and become primary. Excess coverage is written to either follow the underlying forms or in some cases, to be more restrictive than the underlying forms. Excess conditions state that the carrier has no obligation to pay or defend claims/suits until the SIR is paid. Is the insured subject to their SIR every time the excess policy coverage is triggered?