Why might a business carry excess liability insurance?

A business might carry excess liability insurance primarily to cover losses that exceed the limits of its standard liability policies. Standard liability insurance typically has specific coverage limits, meaning that once a claim surpasses those limits, the business would be responsible for the remaining costs. By having excess liability insurance, a business ensures that it has additional financial protection against large claims that could otherwise significantly impact its bottom line and financial stability. This type of insurance acts as a safety net, providing coverage for large settlements or judgments that may arise from lawsuits or claims.

While other options may seem plausible, they do not accurately reflect the primary reason businesses obtain this type of insurance. For instance, reducing policy premiums is generally not a direct benefit of excess liability insurance; instead, it is typically more expensive due to the higher levels of coverage provided. Additionally, limiting coverage to physical damages would not justify the need for excess liability insurance, which is designed to address a broader spectrum of liability risks, including bodily injury and personal property damage. Lastly, covering smaller claims is more aligned with general liability policies or different types of insurance designed for that purpose, rather than the specific intent of excess liability coverage, which is to provide a safety cushion for larger claims.