What's the Difference Between Excess and Umbrella Insurance?

When policies do not cover the claim or scope of an incident, policyholders are often responsible for paying any remaining costs out of pocket.

Contractors can protect themselves against these losses with excess and umbrella liability insurance—both of which increase policy limits, but involve several key differences.

Excess insurance does not expand policy terms, but covers higher limits in case of catastrophic claims or loss. Umbrella insurance, a form of excess insurance, does expand terms and provides broader coverage for losses not outlined in the underlying policy. 

Let’s explore both of these further so you can ensure continuous coverage, mitigate risks, and streamline vendor management.

Key Takeaways

• Excess and umbrella insurance both increase policy limits, but umbrella coverage expands terms while excess coverage only extends financial limits.
• In construction, proper coverage prevents costly scenarios like a $1.4 million claim when your policy limit is only $1 million.
• Manual certificate of insurance (COI) tracking often misses critical discrepancies between underlying and excess policies, creating dangerous liability gaps.
• Automated COI tracking systems instantly flag misalignments in coverage dates, policy limits, and exclusions across all insurance documentation.
• bcs offers both full-service and self-service COI tracking solutions that streamline vendor management and minimize risk exposure through AI-powered verification and simplified workflows.

When Excess Insurance & Umbrella Insurance Help You

An underlying policy is the initial insurance established to protect against risks and address associated losses. 

Each policy has its own unique scope of protected risks and financial limits. Any liabilities from an incident exceeding or not included in its terms become the responsibility of the policyholder—not the insurance company.

For example, let’s say Billie the Builder’s underlying policy covers job site injuries, with damages up to $1 million. In which of the following scenarios would the contractor be completely covered?

• Scenario 1: An accident occurs on the job site that the contractor is responsible for. Damages are assessed at $700,000.
• Scenario 2: An accident occurs on the job site that the contractor is responsible for. Damages are assessed at $1.4 million.
• Scenario 3: An accident occurs off the job site that the contractor is responsible for. Damages are assessed at $700,000.

Billie the Builder is only fully covered in Scenario 1.

Here’s why:

In Scenario 2, while the scope of the incident is covered by the policy, the $1 million limit means the contractor would be responsible for the excess $400,000.

In Scenario 3, the contractor would be responsible for the full $700,000 assessment because the location of the accident was not covered by the scope of the policy—an inclusion gap. No matter the financial cap of the policy, the claim would not be covered.

Fortunately, there are ways contractors can protect themselves against the types of losses in Scenarios 2 and 3: Excess and umbrella insurance.

What Is Excess Insurance?

Excess insurance provides higher financial limits beyond those covered by the underlying policy. This type of insurance kicks in after the limits of the primary insurance policy are exhausted, and essentially provides additional coverage for the same risks covered by the primary policy.

Unlike umbrella policies, excess insurance does not expand the terms, or scope, of the underlying policy, but rather, extends limits to safeguard against unforeseen, catastrophic claims and loss.

For example, excess insurance helps contractors avoid the situation outlined in Scenario 2 (above). By expanding their limits to cover job site accidents up to $2 million, Billie the Builder would not be responsible for the excess $400,000 payment.

Excess coverage is generally less expensive than umbrella insurance since it follows the terms of the primary policies.

This additional layer of protection ensures that businesses can confidently navigate situations where the liabilities extend beyond the confines of their primary insurance, offering a robust financial safeguard against unforeseen and significant claims. 

What Is Umbrella Insurance?

A form of excess liability insurance, umbrella insurance broadens policy scope, while expanding coverage to claims that exceed the limits of the underlying policy.

Umbrella insurance can extend coverage over multiple primary policies and typically offers higher liability limits compared to primary insurance policies.

For instance, an umbrella policy may cover auto liability in a foreign country even though the commercial auto policy does not extend its territory to these countries.

Therefore, umbrella insurance helps close any outstanding liability gaps.

In the examples above, umbrella insurance would have helped Billie the Builder to protect themselves in Scenario 3: They could have purchased an umbrella policy that covered incidents occurring off the job site.

Of course, before insurers will address any of these losses, the insured must often pay a self-insured retention (SIR) fee—an amount the policyholder pays before insurance companies will respond to an incident. 

COI Tracking Implications for Excess & Umbrella Insurance

Managing excess and umbrella policies adds another layer of complexity to an already challenging certificate of insurance tracking process, which involves monitoring and verifying insurance certificates from vendors to ensure compliance with specific requirements, which can be manual and time-consuming but is streamlined by automated systems that provide real-time updates and notifications.  

Unlike standard liability policies, these specialized coverages require a more nuanced verification approach to ensure proper protection is in place.

When reviewing COIs that include excess or umbrella coverage, vendor compliance managers, property managers, and general contractors must verify both the underlying policy limits and the additional coverage amounts. This dual verification process is critical—if the underlying policy doesn't meet minimum requirements, the excess or umbrella policy may not respond as expected, potentially creating significant liability gaps.

Many construction firms and property managers still track these specialized policies manually, often missing crucial details or failing to identify mismatches between underlying and excess coverage. For instance, an excess policy might list a follow-form provision that excludes certain operations covered by the primary policy, creating a dangerous compliance gap that spreadsheet-based tracking systems frequently miss.

Comprehensive, automated COI tracking software transforms this verification process by instantly flagging discrepancies between underlying and excess policies. When a vendor submits documentation, the system automatically checks that excess policy limits align properly with primary coverage, that umbrella policies include the necessary endorsements, and that coverage dates remain synchronized across all policies.

This systematic approach eliminates the risk of human error that often occurs when manually reviewing complex policy structures. The best COI tracking solutions can immediately identify when umbrella policies contain exclusions not present in underlying coverage—a critical insight that protects your business from unexpected liability exposure during high-value claims.

bcs: Your Automated, Comprehensive COI Tracking Solution

Keeping track of insurance coverage can be an involved process—and can get even more complicated with multiple vendors involved.

Rather than risk the oversight and manual paperwork that often accompanies manual certificate of insurance (COI) tracking, consider streamlining your vendor management processes with modern, automated software.

From automated requests for proposal (RFPs) and onboarding to AI-powered deficiency alerts and in-app messaging, bcs’ full- and self-service COI tracking solutions manage it all, so you can streamline coverage, mitigate risks, and focus on running your business. 

bcs is the preeminent COI tracking solution, with self-service and full-service options that simplify every aspect of vendor management. To learn more, schedule a demo or contact us today.

Common Misconceptions About Excess & Umbrella Insurance

The terms "excess" and "umbrella" insurance are often used interchangeably in construction conversations, but this common misconception can lead to serious coverage gaps. Let's address several widespread misunderstandings that could leave your business exposed.

Misconception #1: Excess and umbrella policies are identical.

Perhaps the most dangerous misconception is treating these distinct coverage types as interchangeable. While both increase liability limits, only umbrella policies expand the scope of coverage beyond the underlying policy's terms. A contractor who purchases excess liability coverage believing it will provide the broader protection of an umbrella policy may discover this error only after a claim falls outside their primary policy's scope.

Misconception #2: These policies automatically cover all operations.

Many contractors assume that once they purchase an excess or umbrella policy, all their business activities are protected under the expanded limits. In reality, these policies often contain specific exclusions for high-risk operations common in construction, such as work at certain heights, specific types of excavation, or particular demolition activities. Without careful review, contractors may discover these exclusions only after a catastrophic claim.

Misconception #3: Self-insured retention (SIR) works like a deductible.

While deductibles are paid after a claim and often handled by the insurer, SIRs must typically be paid before the insurer will respond to a claim. This distinction becomes critical with umbrella policies, where the SIR applies to claims not covered by the underlying policy. Many contractors mistakenly believe their excess or umbrella coverage will immediately respond to claims exceeding their primary limits, only to discover they must first satisfy a substantial SIR.

Misconception #4: Policy language doesn't matter if limits are adequate.

Some construction firms focus exclusively on coverage limits while overlooking critical policy language. Terms like "follow form" versus "stand-alone coverage" significantly impact how excess and umbrella policies respond to claims. What appears to be adequate coverage on paper may prove insufficient if the policy language contains unexpected limitations.

Misconception #5: Tracking these policies is no different than tracking standard liability.

The specialized nature of excess and umbrella policies creates unique compliance verification challenges. Missing endorsements, misaligned coverage dates, or overlooked exclusions can render these policies ineffective when needed most. Many contractors fail to implement specialized tracking procedures for these policies, creating potential compliance gaps even when documentation is collected.

Understanding these distinctions isn't just an academic exercise—it's essential for protecting your construction business from potentially devastating claims. Working with insurance professionals who understand these nuances and implementing robust COI tracking software that can verify complex policy structures ensures your excess and umbrella coverage provides the protection you're counting on when catastrophic claims arise.