What Is Excess Liability Coverage?
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As a business owner, you’re likely familiar with the most common types of 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. That’s where excess liability coverage comes in.
In this guide, 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 increases the limits of an existing insurance policy, usually a commercial general liability 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.
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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.
What does excess liability insurance cover?
Since commercial excess liability insurance sits on top of an existing policy, much of what is covered under excess liability depends on the original policy. Excess liability coverage can increase the dollar limits on primary insurance policies, including:
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: This liability policy covers your business if you’re sued by an employee for injury or illness not traditionally included within workers' comp.
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: 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 insurance 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
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.
Unlike excess liability, business umbrella insurance 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 "self-insured retention," or 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 an 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.
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, be sure that it’s truly an umbrella liability policy or an excess liability policy — depending on which you’re looking for.
Cost of excess liability insurance
As with 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.
Location.
Insurance provider.
Generally, 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 business insurance is likely to be more expensive than business consultant insurance, due to the greater risk of general liability and employer’s liability claims in construction.
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.
Does your business need 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, 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. 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
Start by contacting your insurance provider to find out whether it offers excess liability coverage. If it does, you’ll likely find that they can provide a policy offer quickly or can offer a more affordable policy (similar to the way you can save money by bundling insurance through a business owner's policy with one company) than you’d find from other companies.
However, if your provider doesn't provide excess liability or you want to compare rates, consider the following companies:
The Hartford
The Hartford offers “affordable protection for unexpected risks,” through their excess liability coverage. According to its website, its 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 its 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.
Hiscox
Hiscox offers a wide range of policies, including excess liability coverage through its 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.
This article originally appeared on Fundera, a subsidiary of NerdWallet.
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