There are two policies that can provide additional liability insurance over your existing liability policies. They are umbrella policies and excess liability policies.
There is a big conceptual difference in the two policies. An excess liability policy just extends coverage over your other liability policies. The excess liability policy mirrors the coverages of your base policies. As a result, for an excess liability policy to pay a claim the base policy must cover the loss and be used up.
The umbrella policy is different. An umbrella policy is generally broader in coverage than your base policies. As a result, an umbrella could pay if your base policy did not insure a particular occurrence. The umbrella still has exclusions and limitations, just fewer than your base policies. As a result, an umbrella policy is considered superior to the excess liability policy.
While choosing an umbrella limit, the biggest error is getting an amount based on what a contract requires you to provide instead of the actual exposure. The situation we want you to avoid is as follows: A general contractor that builds about 30-40 homes a year asked my opinion. He wanted to know if we agreed with him.
His current agent thought he had the need for a $5,000,000 umbrella and the GC did not think that was right. The maximum house value that he builds is only $600,000. We agreed with the general contractor. The $5,000,000 umbrella was wrong and then we told him that his exposure was more in the range of $50,000,000.
The products and completed operations portion of the commercial general liability policy of certain classes of business can easily create that much risk. So how much insurance is enough insurance? We have a philosophy. You need one dollar more in coverage than you have in loss. Your crystal ball is probably better than ours. Since it’s your money, you should choose. We’ll just assist with our knowledge of insurance and insurance company resources.