Excess insurance, also known as umbrella insurance, refers to a type of coverage that provides additional protection beyond what is offered by the primary insurance policies. It is designed to kick in when the limits of the underlying policy are reached, offering an extra layer of security to the insured. This type of insurance is particularly useful in situations where the potential losses or liabilities exceed the amount of coverage provided by the standard policy.
For example, if an individual has an auto insurance policy with a liability limit of $300,000 and an excess insurance policy with a limit of $1 million, and they are at fault in an accident where the damages total $500,000, the primary auto insurance would cover the first $300,000. The excess insurance would then cover the remaining $200,000, preventing the individual from having to pay out of pocket.
Excess insurance is often purchased by individuals and businesses that want to protect their assets from lawsuits or major claims. It provides peace of mind by ensuring that significant losses or legal fees will not cause financial hardship. This type of insurance is also beneficial for those who engage in activities that put them at higher risk of incurring large liabilities, such as property owners, professionals with a high net worth, or businesses operating in litigious industries.