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Excess insurance is insurance that provides coverage in the event that claims exceed the limits set on primary insurance policies. It is sometimes referred to as umbrella insurance, although some insurers do not use these terms interchangeably. When purchasing insurance products, it is advisable to ask an individual insurer for a specific and clear definition of a policy type so that the terms are understood and there is no confusion about what is covered.
A typical primary insurance policy has deductibles and coverage limits. Deductibles require people to pay out of pocket for at least part of insurable events, and they can vary, depending on the terms of the policy. Coverage limits set a cap on the amount of total available payout. If an incident exceeds the cap, people would be expected to pay for any excess costs themselves. When these costs are very high, this can present a significant hardship.
Excess insurance is designed to address these situations. Once primary coverage has been exhausted, people can file a claim against the excess insurance policy and it will cover the difference. This type of coverage can be used to offer additional coverage on several types of primary policies. As a general rule, true excess insurance only kicks in when the primary polices are all over their coverage limits. People should be aware that some insurers use the term “umbrella insurance” to refer to policies that will fill gaps in coverage by stepping in before primary policies are tapped out.
Buying a primary policy with high coverage limits can be extremely expensive. The combined costs of a reasonable primary policy to cover most events and an excess insurance policy to handle catastrophes is usually lower, and the coverage can be better. Insurance agents can provide people with information on specific insurance products that may be relevant to their needs, including information about excess insurance that will dovetail well with their existing primary policies.
It is important for people to make sure that they have adequate insurance coverage. For example, a property owner should make sure to carry a vehicle liability policy that meets or exceeds the value of the property, in the event that there is a lawsuit and the plaintiff attempts to sue for the full value of all of the driver's assets. For business owners and property owners, failing to have the right kind of coverage and not having enough coverage can be a very costly mistake.