What is the primary difference between an Umbrella Liability Policy and an Excess Liability Policy?

The primary difference between an Umbrella Liability Policy and an Excess Liability Policy lies in the concept of "drop down coverage." An Umbrella Liability Policy provides broader coverage than underlying policies. It can fill in gaps in coverage where the underlying policies may not respond, thus, it "drops down" to cover claims that would otherwise be excluded or inadequately covered by those primary policies.

In contrast, an Excess Liability Policy typically only increases the limits of liability for existing coverages without adding any additional coverage layers. It functions solely to pay claims that exceed the limits of existing policies, hence it does not offer that “drop down” feature.

This distinction is critical because it affects how and when the policy will respond to claims. Understanding the differences enables policyholders to choose the right type of liability protection according to their needs and potential risk exposures.