When it comes to protecting your assets and financial future, insurance coverage is essential. While most people have a standard liability insurance policy, there are additional options available that can provide even greater protection. Two of the most common options are excess liability coverage and umbrella insurance.
This article will focus on the benefits of excess liability coverage and why it may be a smart addition to your insurance portfolio.
Excess liability coverage can provide increased coverage limits, protection for gaps in your standard policy, and coverage for high-net-worth individuals, among other benefits. We will explore these benefits and more and highlight the differences between excess liability coverage and umbrella insurance.
By the end of this article, you will better understand excess liability coverage and why it may be worth considering for your insurance portfolio.
Excess Liability Coverage vs. Umbrella Insurance
The Business Professor state that excess liability coverage is not the same as umbrella insurance, although the two terms are sometimes used interchangeably. While both types of policies provide additional liability coverage beyond the limits of a standard policy, there are some key differences.
Umbrella insurance typically covers a broader range of events than excess liability coverage, and it may also provide coverage for claims not covered by your standard policy. On the other hand, excess liability coverage is designed to provide additional protection for specific events or types of claims.
- Excess liability coverage provides coverage for specific events or types of claims, while umbrella insurance provides broader coverage that extends beyond the limits of your primary policy.
- You can tailor excess liability coverage to your specific needs and budget, while umbrella insurance typically requires higher coverage limits on your primary policy.
- Excess liability coverage may be easier to qualify for, while umbrella insurance may be more expensive.
The decision between excess liability coverage vs. umbrella insurance will ultimately depend on your individual needs and circumstances, such as your assets and the risk of being sued. However, understanding the differences between these options can help you decide which one to add to your insurance portfolio.
The article further explores six reasons you should consider adding this coverage to your insurance portfolio.
1. Protecting Your Assets
One of the primary reasons to consider adding excess liability coverage to your insurance portfolio is to protect your assets. For example, suppose you are sued for damages, and the claim amount exceeds the limits of your primary liability insurance policy. In that case, you could be liable for the remainder of the damages. It could put your assets, such as your home, savings, and investments, at risk.
Excess liability coverage can provide additional coverage to protect your assets in the event of a lawsuit. By adding excess liability coverage to your insurance portfolio, you can have peace of mind knowing that your assets are protected and that you have additional coverage in case of a major claim.
2. Increasing Coverage Limits
Your primary liability insurance policy will have a maximum coverage limit, and if a claim exceeds this limit, you could be responsible for the remaining damages. However, excess liability coverage can provide additional coverage beyond the limits of your primary policy, giving you more protection against high-dollar claims. This additional coverage can be particularly important for those with a high net worth or significant assets to protect.
By increasing your coverage limits through excess liability coverage, you can have greater peace of mind knowing that you are adequately protected in a catastrophic event. For example, suppose your standard liability policy has a limit of $1 million, and you purchase an excess liability policy with a limit of $5 million. In that case, you’ll have $6 million in coverage.
3. Covering Gaps in Coverage
Depending on your insurance policies, certain events or types of claims may not be covered or may only be covered up to a certain limit. Excess liability coverage can fill those gaps and provide coverage where your primary policies fall short.
For example, suppose you have a homeowner’s insurance policy that does not cover certain types of claims, such as those related to a dog bite. In that case, excess liability coverage can cover specific claims.
Adding excess liability coverage to your insurance portfolio ensures adequate coverage for various potential events or claims. In addition, it can provide greater protection and mental peace for you and your family.
4. Protection for High-Net-Worth Individuals
Excess liability coverage can provide an important safeguard for high-net-worth individuals with substantial assets to protect. They may be more susceptible to legal action and large settlements due to their perceived ability to pay. Excess liability coverage can provide additional protection, defending them against potential lawsuits and claims.
Adding this coverage to their insurance portfolio can mitigate the financial risks associated with lawsuits, protecting their wealth and assets from damages. In addition, it can provide a robust defense against unexpected and potentially ruinous legal challenges, ensuring their long-term financial stability.
5. Peace of Mind
Knowing they have additional protection against unforeseen and potentially devastating claims can help reduce anxiety and worry about legal action. The coverage can be especially beneficial for covering gaps in coverage, increasing coverage limits, and protecting against potentially ruinous legal challenges.
With the added protection of excess liability coverage, policyholders can focus on other important aspects of their lives, such as family, career, and personal pursuits, without worrying about the financial implications of a legal claim. Overall, the peace of mind with excess liability coverage is invaluable and can provide policyholders with greater confidence and financial security.
6. Protection for Businesses
In today’s litigious society, businesses face numerous risks and potential legal challenges that can lead to significant financial losses. To support this, a report from Rocket Lawyer claims that small businesses face a genuine threat of lawsuits as more than 100 million cases are filed in state courts across the United States each year.
Among all the legal cases filed against small businesses, contract disputes are a major source of liability, accounting for around 60% of the nearly 20 million civil cases filed annually. Another potential risk area is tort cases involving slip and fall incidents, employment discrimination, and wrongful death lawsuits, comprising approximately 11% of civil cases.
With excess liability coverage, businesses can protect themselves against catastrophic claims and lawsuits that go beyond the limits of their underlying insurance policies. In addition, this coverage can help ensure that a business is financially prepared to face unexpected legal challenges, which can otherwise be devastating.
Additionally, businesses may be required to carry excess liability coverage as part of their contractual agreements with clients or vendors. By adding this coverage to their insurance portfolio, businesses can demonstrate their commitment to responsible risk management and strengthen their relationships with clients and other stakeholders.
7. Affordable Premiums
Contrary to what some believe, adding excess liability coverage to an insurance portfolio does not necessarily come at an exorbitant cost. On the contrary, this additional coverage can often be obtained at a relatively affordable price. Moreover, since the coverage provides an extra layer of protection beyond a policy’s underlying limits, the premiums are typically lower than those of the primary policy.
Additionally, insurance companies may offer discounts to policyholders who bundle their excess liability coverage with other policies, such as homeowners or auto insurance. As a result, it can make it easier and more cost-effective for policyholders to obtain the additional protection they need.
As per NerdWallet, the average cost for a commercial excess liability policy is around $1,000 per year for every million dollars of coverage. Thus, for instance, a $3 million policy would cost $3,000 annually or $250 monthly. However, smaller businesses with fewer risks may find lower costs ranging between $200 to $400 annually.
Make Excess Liability Coverage a Part of Your Insurance Portfolio
Excess liability coverage is valuable to any insurance portfolio, providing critical protection and peace of mind for individuals and businesses alike. It can help safeguard against unexpected and potentially catastrophic losses by increasing coverage limits, filling gaps in coverage, and protecting high-value assets and businesses.
Excess liability coverage is an accessible and practical solution with affordable premiums and the ability to customize coverage to meet specific needs. Adding it to your insurance portfolio is a proactive step to protect your financial security and future well-being.