Umbrella Insurance vs. Excess Liability Coverage: What Contractors Need to Know

When a claim exceeds your policy’s limits, the leftover costs come out of your pocket — and for contractors, those numbers can get big fast.
That’s where excess liability and umbrella insurance step in, giving your coverage a much-needed boost. While they may sound similar, they work in slightly different ways, and knowing the difference could save your business from serious financial risk.

Before we break them down, remember: contact the team at LG Insurance Agency and we can help you determine which coverage fits your unique needs.

Understanding the Base: Your Underlying Policy

Your underlying policy is your first line of defense — it’s the coverage you already have in place for specific risks, each with its own limits.
If a claim goes beyond those limits or falls outside the policy’s scope, you’re responsible for paying the rest.

Example:
John Smith, a local landscaper, has an underlying policy covering job site injuries up to $1 million.

Scenario 1

A job site accident results in $750,000 in damages. ✅ Fully covered.

Scenario 2

A job site accident results in $2.8 million in damages. ❌ Covered up to $1 million, but John owes the extra $1.8 million.

Scenario 3

An off-site accident causes $420,000 in damages. ❌ Not covered at all because the incident happened outside the policy’s scope.

Excess Liability Insurance: Raising the Limit

Excess liability insurance increases the dollar limit on your existing policy without changing what that policy covers.
In Scenario 2 above, if John had an excess policy boosting his job site injury coverage to $3 million, the full $2.8 million claim would be covered.

Key takeaway: Excess insurance = higher limits, same scope.

Umbrella Insurance: Expanding the Scope

Umbrella insurance is like excess coverage — but with extra reach. It not only increases your limits, it can also cover incidents that your underlying policy doesn’t touch.

Example: It might extend your commercial auto coverage to accidents in foreign countries or cover certain off-site incidents.
In Scenario 3, an umbrella policy could have covered that $420,000 off-site accident, closing the gap in John’s coverage.

Many umbrella policies require you to pay a self-insured retention (SIR) before they kick in for losses not covered by your base policy.

Key takeaway: Umbrella insurance = higher limits + broader coverage.

What’s Not Covered

While these policies are powerful risk-management tools, they won’t cover:

• Your own injuries

• Damage to your personal property

• Intentional or criminal acts

• Certain incidents (e.g., using an uncovered recreational vehicle)

Choosing the Right Protection

Excess Liability Insurance: Best for boosting your coverage limits without changing what’s covered.
Umbrella Insurance: Ideal if you want higher limits and expanded coverage for situations not included in your underlying policy.

Don’t Leave Gaps in Your Coverage

Unexpected claims can derail a project and put your business at serious financial risk. The right combination of liability policies ensures you’re protected from both large claims and coverage gaps.

📞 Call LG Insurance Agency at 877-288-7169 or click here to request a quote today.
Let us help you protect your business, your reputation, and your bottom line.