Liability insurance policies help protect your business from the risks of unexpected accidents or incidents that arise from the hazards companies face every day. A multi-million-dollar lawsuit that exceeds a company’s liability insurance limits could be devastating, especially for a small business. Commercial excess insurance is one of the ways a business can help protect themselves from these potentially large, catastrophic losses.
What is Commercial Excess Liability Insurance?
Excess liability insurance offers protection that exceeds the limits of a basic liability policy. It provides higher limits, with the same terms and conditions as the underlying policy. Excess liability coverage follows the primary liability coverage and is activated when the underlying policy limit is exhausted because of a large claim. It is an extra layer of security from a disastrous event.
For example, a small business has a general liability insurance policy with $1 million in coverage, and an excess liability policy that extends the coverage of the policy with an additional $1 million limit. A claim is filed, and the business is found liable for $1.5 million in damages. Since the business’s general liability policy only covers $1 million, the excess liability coverage would pay the remaining $500,000 – but only if the excess coverage was on that underlying policy. Without the excess insurance policy, the business would have to find a way to pay the difference out of pocket, potentially bankrupting them.
What is covered by Commercial Excess Liability Insurance?
Commercial excess liability insurance simply extends the limits of an underlying business liability insurance policy, up to the amount purchased. It does not change the coverage of the existing liability insurance. Excess liability policies can provide an extra cushion of protection on top of an existing policy for large or potentially catastrophic claims. It helps protect the future of a business by ensuring it is not bankrupted by a single event or claim.
Commercial Excess Liability Insurance and Umbrella Liability Insurance
Commercial excess liability insurance is often confused with business umbrella insurance, but there is a difference. Both excess liability insurance and commercial umbrella policies offer coverage above the limits of an underlying coverage. The main difference between them is that umbrella insurance can broaden or extend your coverage, whereas excess insurance offers coverage that is above the limits of a liability policy and does not broaden your coverage the way an umbrella insurance policy does.
Who needs Commercial Excess Liability Insurance?
As a business grows, so do its liability risks. The risks increase with the amount of work and the facilities or potentially dangerous equipment involved. It is beneficial for businesses that may have a lot to lose in the event of a claim or lawsuit. If a business has a lot of assets or property, or works in a high-risk industry, excess liability coverage may be valuable. A few reasons to consider an excess liability insurance policy include:
- The limits available for the primary liability policy may not be enough to appropriately cover the company’s risk exposure.
- The business may be taking on a project for a client and the contract requires liability insurance limits that exceed the company’s primary liability policy.
No matter how much you invest in safety and prevention, accidents always happen, and the future is unpredictable. Risks will always exist, but you can protect your business by being prepared with insurance that covers potentially catastrophic events. Commercial excess insurance is a risk management strategy that can help you protect your company, its assets, employees, and clients.
What does Commercial Excess Insurance cost?
Since there are already underlying liability coverages, commercial excess insurance can be surprisingly affordable – especially for the additional protection it provides.
The exact cost will vary depending upon:
- The size and type of business you have.
- Your existing business liability insurance.
- Your potential exposure.
For example, a construction company’s liabilities may be significantly more than that of a retail business. However, for a relatively small additional cost, an excess liability policy offers piece of mind that the business is protected – and the cost for each additional million dollars in coverage usually decreases.
How much excess insurance coverage does my business need?
There are several factors you should consider when determining how much commercial excess insurance your business needs:
How much does your business liability insurance cover? If there is the potential for a lawsuit to exceed your liability policy limits, you should think about excess insurance that will increase your limits. Consider the risks involved with your business and the industry. If you work with hazardous materials or your employees operate vehicles or heavy equipment, your business may need higher commercial excess insurance limits.
How much does the business have in assets? In general, the more assets a business has, the more coverage is needed to protect it and its finances. A good rule is to have at least enough insurance coverage to replace your company’s assets. Otherwise, a large lawsuit could wipe out those assets.
Do you plan to grow the business? If a large lawsuit exceeds the company’s assets and coverage, it could go bankrupt. It will certainly threaten the company’s ability to reinvest in its own growth. When considering a commercial excess policy, consider your plans for growth.
Depending upon the size of the company and its risks, businesses usually carry excess liability coverage of at least $1 million, and as much as $25 million or more. It is a relatively low-cost addition to business insurance to safeguard a company’s assets and protect against large claims.
Commercial Excess Liability Insurance Benefits
If your business wants added protection, above the limits of your business liability policies, commercial excess liability insurance can provide that security. If you work in a high-risk industry or own significant assets, commercial excess liability insurance coverage can give you and your clients confidence that your business can survive a major incident or accident.