Most of us buy insurance hoping we’ll never have to use it. We select liability limits on our auto, homeowners or business insurance policies and may not give those limits much thought again.
But what happens when a serious liability claim exceeds the amount of insurance available?
That’s where conversations about umbrella and excess liability insurance often begin.
Understanding whether additional protection makes sense starts with something more basic: understanding where liability can come from and the potential financial implications of a serious claim.
Liability Can Come From Everyday Situations
Liability generally involves an allegation that you are legally responsible for someone else’s injury or property damage.
An automobile accident is an obvious example. A serious accident involving several vehicles or injuries could result in significant medical expenses, lost income, property damage and other damages.
But liability isn’t limited to driving.
At home, questions of liability could arise after someone is injured on your property, an incident involving a pet, or other everyday circumstances.
Businesses have their own exposures involving customers, employees, vehicles, property, products, completed work and other operations.
Whether someone is ultimately legally responsible always depends on the circumstances. The point is that significant liability claims can arise from fairly ordinary situations.
Liability Can Also Be About What You Didn’t Do
We tend to associate liability with an action—causing an accident or damaging someone’s property.
But allegations can also involve something you failed to do.
Perhaps a loose handrail wasn’t repaired, a deteriorating step wasn’t addressed or another known property condition remained unresolved. If someone is injured, questions may arise about whether reasonable steps should have been taken.
Businesses can face similar allegations involving deferred maintenance, property conditions or other issues they allegedly failed to address.
Liability exposure can come from both actions and inactions.
What If the Claim Is Greater Than Your Insurance Limit?
Homeowners, automobile and business insurance policies generally include liability limits, subject to the terms and conditions of each policy.
A serious loss raises an important question:
What happens if the damages exceed the applicable insurance limit?
For some individuals, families and businesses, additional liability protection may be worth considering.
That’s where you may encounter two terms: excess liability insurance and umbrella insurance.
Umbrella vs. Excess Liability Insurance
Both can provide additional liability limits above certain underlying insurance policies, but the terms aren’t necessarily interchangeable.
An excess liability policy generally provides another layer of liability limits above specified underlying insurance.
An umbrella policy also provides additional liability protection and, depending on the particular policy, may operate differently or provide coverage beyond what is available under certain underlying policies.
Coverage, exclusions, underlying insurance requirements and other provisions vary by insurance company and policy.
For consumers, the important point isn’t simply what the policy is called. It’s understanding what additional protection you’re purchasing and how it works with the insurance you already have.
Is Additional Liability Insurance Only for Wealthy People?
Net worth is certainly something to consider, but it isn’t the only consideration.
Think about your everyday exposures.
Do you have multiple drivers in your household? A young or inexperienced driver? A dog? Rental property? A pool? Frequent visitors?
For a business, consider employees, vehicles, customers, locations, contracts and the services or products you provide.
The more useful question may be:
How much liability exposure am I comfortable retaining compared with the amount of insurance protection I have?
There isn’t one answer that applies to every household or business.
Businesses Change—and Their Liability Exposure Can Too
A business may add employees, vehicles, locations, customers, contracts or entirely new services over time.
Growth isn’t measured only by revenue. Changes in how a business operates can change its risk.
Business owners may encounter both commercial umbrella and commercial excess liability insurance when evaluating additional limits.
Rather than simply asking, “Do I have an umbrella?” a better question may be:
“Do my liability limits still make sense for the business I operate today?”
Start With Your Exposure, Not the Product
There may be several ways to address concerns about liability limits. Depending on the circumstances, that could include reviewing existing limits, considering higher underlying limits, or discussing umbrella or excess liability coverage.
A useful review starts with questions such as:
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Who drives your vehicles?
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What property do you own?
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Have your household circumstances changed?
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Do you have exposures that weren’t present when your insurance was originally purchased?
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If you own a business, have your operations changed?
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What liability limits do you currently carry?
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What could happen financially if a serious claim exceeded those limits?
These questions aren’t intended to determine how much insurance you should purchase. They help start a more informed conversation.
Does Your Liability Protection Still Fit?
Life changes. Businesses change. Risks change.
Liability limits selected years ago may not have been reconsidered even though you’ve added drivers, acquired property, started or expanded a business, or experienced other significant changes.
The goal isn’t to assume everyone needs an umbrella or excess liability policy.
It’s to ask a more important question:
If something serious happened, would the liability protection I have today still make sense for the life or business I have today?
Insurance Considerations
This resource is intended to highlight insurance and risk-management issues individuals and businesses may want to consider. It is not intended to determine whether a particular claim is covered or recommend a specific amount or type of insurance. Coverage, limits, exclusions and policy terms vary by insurance company, policy and individual circumstances. Speak with your insurance professional about your specific situation.
