How Does Excess Insurance Work?

excess insurance

The primary insurance policies you offer your clients serve as their first defense against numerous liabilities. Their coverage shields them from the financial impacts of property damage, accidents, and personal injury lawsuits. Many people get enough coverage from their primary insurance policies, but some require higher payment limits. The value of their home, business, or personal items may exceed the maximum coverage available under their primary policy. In other cases, their risk levels may be too high for them to get sufficient coverage. An excess insurance policy provides the added security these clients need.

What Is Excess Liability Insurance Policy Coverage?

Excess liability insurance covers liabilities that extend beyond the limit of the primary policy. Also called secondary policies, they provide added coverage for high-cost claims. Both Medicare and private policies can serve as excess insurance.

Many people use the terms excess insurance and umbrella insurance interchangeably, but there is an important difference. Umbrella insurance can increase the limit on any primary insurance policy your client holds, whether it be personal injury, habitational insurance, or auto insurance. An excess policy applies to one policy only. If your client purchases an excess policy to increase their personal injury liability limit, they may not use that coverage to extend any other policy.

What Does Excess Insurance Cover?

An excess policy covers almost any type of claim, provided primary coverage has been exhausted. Take the example of a homeowner who has a $200,000 primary home insurance policy and a $100,000 excess insurance policy. If the home suffers $250,000 in damage due to a fire, the primary policy will cover the first $200,000 in payments. The excess policy would cover the additional $50,000, along with any additional liabilities that arise from the incident. 

Excess liability insurance policies provide an additional layer of financial protection, but they have limits. They will not provide coverage for anything not included on the primary insurance policy. In other words, these policies increase the limit, but they do not expand coverage. Also, your clients must understand that their primary or underlying policy will always be used first and must be exhausted before excess coverage begins. 

Why Would a Business Need Excess Liability Insurance?

Although anyone can carry excess liability insurance, it is especially beneficial to businesses. A business faces more exposure than most individuals, primarily if they work in high-risk industries or take on large, expensive projects. A primary insurance policy with a $2 million limit may seem sufficient, but one large claim could quickly exhaust that limit. Excess liability insurance allows businesses to handle more sizable claims without cutting into profits. Talk to your commercial clients about the costs and benefits associated with excess insurance to help them make an informed decision.

About Cochrane and Company

For more than six decades, Cochrane & Company has been proudly at the forefront of the insurance industry. Our experience has enabled us to innovate in powerful ways, reimagining the E&S market, and providing technology solutions that make it easy to do business with us. Licensed in all 50 states, we proudly serve clients across the nation, providing personalized and powerful solutions to help you become an even better partner for your clients. Speak to one of our experienced professionals today by calling (509) 462-1148.


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