What’s the Difference Between Excess Liability vs. Umbrella Insurance?
Is excess liability the same as umbrella insurance?
Both provide extra financial protection once you’ve exhausted your standard policy limits — the maximum amount your insurance company can pay out after an insured event happens. But they differ in scope and application.
In this guide, we’ll break down excess liability vs. umbrella insurance so you can see the differences side by side and choose which insurance option suits you best.
What Excess Liability Insurance Covers
Excess liability insurance doesn’t come with new types of coverage — it only covers events already included in an existing policy. If your auto or homeowners insurance coverage excludes a certain type of claim, excess liability insurance won’t cover it either.
Instead of expanding coverage to new situations, excess liability simply increases the dollar limits of your policy. It kicks in when your standard policy’s maximum limit is reached.
Example:
Suppose your auto policy has a $400,000 bodily injury liability limit. But you’re found legally liable for $600,000 after causing serious injuries to other drivers in a car accident. In that case, your auto policy would cover the first $400,000, while your excess liability policy would cover the remaining $200,000 (up to its limit).
Note: Excess liability insurance only applies to one specific policy. If you attach it to your auto insurance, it won’t extend to your homeowners policy. To raise limits in your homeowners insurance, you’ll need a separate excess liability policy.
When Is Excess Liability Ideal?
- You want higher insurance limits on your existing auto or homeowners policy without paying for extra coverage you don’t need. For instance, you drive frequently and want higher liability car insurance limits, but you don’t need extra coverages like libel or slander.
- You want to protect your assets or savings from being seized to pay for claims that go beyond your existing liability policies.
How Umbrella Insurance Works
Umbrella insurance not only raises the liability limits on your auto and homeowners insurance but also covers certain situations that are often excluded in those policies.
With one umbrella policy, you can extend coverage across multiple policies without needing to add it separately to each one.
Here’s an example of how umbrella insurance works:
Assume you have an auto insurance policy with a $500,000 liability limit and a homeowners' policy with a $350,000 liability limit. Additionally, you buy an umbrella policy, which typically has a coverage limit of at least $1 million.
If you cause a car accident and are held liable for $650,000 in damages, your auto policy will pay the first $500,000, and your umbrella policy will cover the remaining $150,000.
Similarly, if a guest is injured in your home and the total claim you’re liable for amounts to $400,000, your homeowners' policy will pay $350,000, and the same umbrella policy will cover the extra $50,000.
How Umbrella Insurance Broadens Coverage
- Slander, libel, or defamation: If someone claims you hurt their reputation, umbrella insurance can help with legal defense and settlements.
- International incidents: Many umbrella policies extend protection overseas, covering injuries or property damage you cause abroad.
When Umbrella Insurance Is Ideal
- You want both higher limits and broader protection than what your current liability policies provide.
- You want a single policy that covers multiple underlying policies simultaneously.
- You want protection from risks that aren’t typically covered by standard insurance policies, such as defamation.
Excess Liability vs Umbrella Insurance: Key Differences
Understanding the difference between umbrella and excess liability insurance makes it easy to choose the right option. Here’s a side-by-side comparison of excess vs. umbrella policies:
| Feature | Excess Liability Insurance | Umbrella Insurance |
|---|---|---|
| Purpose | Increasing the liability limits on an existing policy | Increasing liability limits and broadening coverage |
| Coverage Scope | Extends liability limits on one specific policy | Extends liability limits and coverage across multiple policies |
| New Types of Coverage | None — only covers what the underlying policy already covers | Yes — may cover things not in base policies, such as libel and slander |
| Flexibility | Must be added separately to each policy you want to extend | One umbrella policy can cover multiple policies at once |
| Cost | Usually cheaper than an umbrella policy | Slightly more expensive |
How To Choose the Right Coverage for Your Needs
Determine Whether You Need Broader Coverage or Just Higher Liability Limits
For raising limits on one policy, go with excess liability. For raising limits across multiple policies and covering additional risks not included in the underlying policies, umbrella insurance is the better choice.
Estimate How Much Coverage is Enough
Calculate your net worth: (Home + Cars + Savings + Investments) — Debt. If your liability limits are lower than your net worth, consider excess or umbrella insurance to make sure your assets are fully protected.
Compare Costs and Quotes
On average, the annual cost of a $1 million umbrella policy is $383, while that of excess liability ranges between $100 and $250. Of course, these are just general figures. Compare custom quotes from multiple insurers and select the option that best suits your budget and coverage needs.
Look for Ways To Maximize Value
- Buying two or more insurance policies from the provider
- Raising your deductibles
- Maintaining a clean claims history
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