As a business owner, you’re likely familiar with the most common types of small business insurance—general liability, commercial auto insurance, commercial property insurance, and more. What you may not know, however, is what can happen when you exceed the limits of your underlying policy—and that’s where excess liability coverage comes in.
What exactly can excess liability insurance do for your business? In this guide, we’re here to discuss that and more. We’ll explain what commercial excess liability coverage is, what it covers, and what it costs for this type of policy. Finally, we’ll help you decide whether your business needs this insurance and explore the best places to find excess liability coverage.
Commercial Excess Liability Insurance Definition
Excess liability insurance is a type of policy that extends the limits of your existing insurance policy. This type of liability insurance is referred to by many terms interchangeably, including excess liability coverage, excess liability insurance, and commercial excess liability insurance.
Excess liability insurance does not expand your current coverage but simply offers a higher dollar limit to protect your business in the case of a claim with costs reaching above the amount of your existing policy. Essentially, excess liability coverage can be thought of as insurance for your insurance.
Excess Liability Coverage Example
Let’s say you have an underlying general liability policy with a $1 million limit. An excess liability policy would provide a greater limit on this original policy, increasing your limit to, say, $2 million.
Then, if your business was fighting a personal injury claim and had to pay a settlement of $1.5 million, your excess liability coverage would kick in to cover the $500,000 that exceeds your original policy limit of $1 million.
It can be difficult to visualize what excess liability coverage will look like, so it may be worthwhile to create a similar graphic to the one below (a simple sketch will do!) outlining how much money you have coverage for in your primary liability policy and your excess liability policy.
What Does Excess Liability Insurance Cover?
Now, with this definition in mind, let’s explore excess liability insurance in a little more detail. What exactly is covered under this type of insurance policy?
As we mentioned, commercial excess liability insurance sits on top of an existing policy—and therefore, much of what is covered under excess liability depends on the original policy. So, in this way, excess liability coverage can increase the dollar limits on:
- General liability insurance: Covering bodily and personal injury, property damage, and the legal costs associated with fighting these kinds of claims.
- Commercial auto insurance: Covering bodily injury or property damage claims (and associated legal fees) that occur from driving a company vehicle or driving a personal vehicle for business purposes.
- Employer’s liability insurance: Often part of workers compensation insurance, this liability policy covers your business if you’re sued by an employee for injury or illness not traditionally included within workers comp.
- Other primary insurance policies
This being said, excess liability coverage will only increase the dollar limits on any of these policies and will not extend the range of coverage of the initial policy. This means that anything not covered under your general liability insurance, like damages to your business property for example, would also not be covered under excess liability insurance for that policy. Therefore, when discussing excess liability coverage, it’s important to distinguish the difference between the terms “coverage” and “limits.”
In the world of insurance, coverage and limits are often used interchangeably to talk about what’s included in different policies—you could conceivably say the coverage on your policy is $1 million, as well as the limit on your policy is $1 million. With an excess liability policy, however, it’s necessary to understand that “coverage” means very literally, occurrences that are covered under the policy (which would be the same occurrences that are covered under the original policy), whereas limits, refers to the dollar amount (e.g. $1 million limit) that is included under your policy.
Keeping these distinctions in mind, let’s review what else is not covered by an excess liability insurance policy:
- Additional coverage: Once again, anything that isn’t covered by your primary insurance policy is also not covered by any excess liability policy you acquire.
- Multiple policies: Excess liability coverage can only apply to one policy—if you add excess liability to your general liability insurance policy, it can only increase your limit on that specific policy. If you need additional funds on top of your commercial auto policy, the excess liability coverage associated with your general liability policy would not be applicable.
Moreover, it’s important to note that an excess liability insurance policy cannot serve as your primary policy in any case—it always supplements an existing policy.
Umbrella vs. Excess Liability Insurance
As you may have gathered, there are a number of nuances associated with excess liability coverage. Another significant distinction to clarify is the difference between umbrella vs. excess liability insurance.
You’ll often see the term “umbrella liability insurance” used to refer to excess liability insurance and vice versa—however, there is a difference between these two types of insurance policies. Generally, umbrella liability insurance and excess liability insurance are very similar; in fact, umbrella liability insurance could be thought of as a type of excess liability policy. Umbrella liability insurance, however, can:
- Be applied to multiple existing liability policies
- Cover claims not included in the existing liability policies
Additionally, to be able to use coverage under an umbrella liability insurance policy, you must meet a special type of deductible called a self-insured retention (SIR). You must meet the amount of your SIR before your business insurance company will respond to the loss. As an example, if you have a SIR on your umbrella policy of $10,000, and you’re making a claim of $100,000, you would pay $10,000 out-of-pocket, and the insurance company would cover the remaining $90,000
This is different from a typical excess liability insurance policy—as the deductible on this policy is typically equal to the liability limits on the primary policy, meaning you don’t have to pay anything out-of-pocket to access the additional limits your excess liability coverage provides.
All of this being said, if you’re looking for excess liability coverage, keep these considerations in mind:
- Work with an insurance broker or agent to establish exactly what this policy entails—as even within the industry, umbrella and excess liability insurance are often thought of as equivalent.
- Before you purchase any policy, you’ll want to be sure that it’s truly an umbrella liability policy or an excess liability policy—depending, of course, on which you’re looking for.
Cost of Excess Liability Insurance
Now that we have a better understanding of how excess liability coverage works and what the difference is between umbrella vs. excess liability insurance, let’s discuss what the cost looks like for this type of policy.
Just like any type of business insurance, the ultimate cost is going to depend on a variety of factors, including:
- The limits of the policy
- The amount of your underlying policy
- What your business does—particularly your industry and perceived risk level
- Time in business
- Insurance company you’re working with
Generally, it’s safe to say the higher the limit you’re looking for on your excess liability policy, the higher the cost. Additionally, because this type of insurance is designed to cover unexpected claims that exceed the limits of your existing policy, your industry and risk level will play an even more influential role in your cost.
For example, construction businesses—which pose a greater risk for general liability and employer’s liability claims, would most likely see some of the highest costs for this type of policy. Conversely, a home-based accounting business would see costs on the lower end of the spectrum for excess liability coverage.
This being said, according to Gordon Atlantic Insurance, the cost of a commercial excess liability policy is typically $1,000 annually for every million dollars of insurance—so, if you’re looking for a $3 million policy, it will cost $3,000 per year or $250 per month. However, as money managing site Howmuch.net points out, smaller businesses with fewer risks can find costs as low as $200 to $400 per year.
Although it’s difficult to make any definitive determination, it’s reasonable to say that your excess liability coverage costs will likely fall somewhere within this range. With this in mind, you can save money on your business insurance costs by mitigating your operational risks—such as holding employee training programs, installing security systems, and creating well-established safety procedures.
Does Your Business Need Excess Liability Coverage?
Considering everything we’ve reviewed thus far, you may be wondering if your business actually needs excess liability coverage. Compared to some other types of commercial insurance, like general liability insurance, which almost all businesses should have, not every small business will need excess liability coverage. To determine whether or not you need this type of policy, you’ll want to consider:
- What your business does
- How you operate
- What your risks are
- What your budget looks like
Excess liability coverage will be helpful for businesses with higher risk—like construction or building companies—that are more likely to face expensive claims that could extend past their primary insurance policies.
Similarly, if you run a brick-and-mortar store in a busy area, for example, you may determine that your risk level warrants investing in excess liability coverage. On the other hand, if you run an ecommerce business from your home, you may find that any current insurance policy you have is sufficient. It’s also important to note that in certain cases, a client or customer your business is working with may require excess liability coverage within their contract.
This being said, however, it’s generally up to you to decide if your business needs excess liability insurance. If you’re having trouble making this decision, however, you might find it helpful to talk to an insurance expert or consult with your business attorney for advice.
Where to Get Excess Liability Coverage
If you do decide you need commercial excess liability insurance, the next step is figuring out where to get your policy. The best place to start, if you already have business insurance, is with your current provider.
You can contact your insurance provider to discuss your options, including whether or not they actually offer excess liability coverage. If your insurance company does offer this kind of policy, you’ll likely find that they can provide a policy offer quickly—as they’ve worked with your business before and have all of your current insurance information. Along these lines, you also might find that your current insurance company can offer a more affordable policy (similar to the way you can save money by bundling insurance through a business owners policy with one company) than you’d find from other companies.
This being said, however, it’s always worth exploring all of your options and talking to multiple providers to see which company can offer you the best deal for your excess liability coverage. With this in mind, if you don’t have a current insurance provider, you may consider any of the following companies:
A traditional insurance company, The Hartford offers “affordable protection for unexpected risks,” through their excess liability coverage. According to their website, their excess liability insurance coverage extends worldwide, with limits up to $25 million and competitive pricing.
The Hartford provides business insurance quotes online, but you can also find an agent or call a representative to discuss your options.
Additionally, The Hartford is well-known for their customizable business owners policy, so this might be a particularly worthwhile option if you haven’t yet purchased business insurance and are looking to bundle multiple policies.
If you want to compare quotes from several insurance providers at once, you might look for excess liability coverage by utilizing Insureon. Insureon is an insurance marketplace that allows you to apply for quotes online (including those for excess liability coverage) and see options from different companies.
Once you’ve received your quotes, you can work with an Insureon representative to review them and decide what’s best for you. With a personalized, yet mostly online-based experience, Insureon is a great option if you’re unsure of your options, but want an efficient and quick way to purchase your business insurance policy. Keep in mind, they use the term “umbrella liability insurance” as well as “excess liability insurance” to refer to supplemental policies.
Although perhaps best known for working with marketing, tech, and service businesses, Hiscox is an insurance company that offers a wide range of policies, including excess liability coverage through their partner, CoverHound.
With Hiscox, you can receive a quote and purchase insurance online, as well as work with an independent agent or broker. In this way, Hiscox offers a middle-ground between traditional large insurance companies like The Hartford, and fully online-based providers or marketplaces like Next or Insureon.
The Bottom Line
At the end of the day, excess liability coverage can be essential to protect your business from claims that exceed the limits of your primary insurance policy. However, not all small businesses will need this type of supplemental policy, so it’s worthwhile to evaluate your risks and budget—and even consult experts for advice—to determine what’s right for you.
With this in mind, if you are searching for excess liability coverage, it’s important to remember that the terms “excess liability” and “umbrella liability” are often used interchangeably. Therefore, you may find that an insurance company doesn’t advertise for excess liability insurance, but instead for umbrella liability insurance.
This being said, however, there is a distinction between umbrella vs. excess liability insurance, so you’ll want to make sure you fully understand the makeup of any policy you’re considering purchasing to determine whether it’s the true excess liability policy you’re looking for.