The Types & Layers of Insurance Coverage

It’s important to understand the type of insurance you have—and need. Insurance comes in many shapes and forms. With this post, I hope to give you a primer on the general structure of insurance.

Policyholders need to know the difference between the types of coverage and the layers of coverage they have. The types of coverage companies typically have include general liability, property, automotive, and workmen’s compensation.  Other coverages are (but aren’t limited to) products liability, foreign liability, director’s and officer’s liability, and errors and omissions. 

As the phrase suggests, the “type of coverage” describes the things your policy will cover. For example, property coverage generally covers damage to your property. Liability coverage provides a defense and an indemnification for liabilities to third parties (think slip and fall). An automotive policy, not surprisingly, covers your vehicles.

While policyholders often have different types of coverage, they also likely have different layers of coverage. Policyholders commonly purchase layers of coverage.  By doing so, policyholders can often lower the total premium they would pay for the same amount of coverage under a single, high limit policy.

The layers of policies are often termed “primary,” “excess,” or “umbrella.” The primary policy is the first policy to respond. Once the primary policy’s limits are exhausted, the excess (or possibly the umbrella) policy will step in and continue to cover the claim. Umbrella policies are designed to serve as both a primary policy and an excess policy. The umbrella policy functions as high excess policy above the primary policies, while at the same time serving as a primary policy in those areas of coverage without a specific primary policy.

Really, the best way to explain the “types” and “layers” of coverage is to illustrate it.

This chart is an example of a company’s potential coverage in a single year. The types of coverage run along the x-axis, while the layers of coverage (and their amounts) are on the y-axis. Primary policies sit first, with the excess policies above them. The umbrella policy sits as the high excess policy for most types of coverage, but fills in the gap of coverage for the Foreign Liability.

If you have questions about any of this, feel free to contact me.

Welcome to the Indiana Insurance Coverage Blog

Welcome to our blog. I’m Greg Gotwald; my co-contributor is Tonya Bond. We decided to start this blog to help inform policyholders of their rights against insurance companies. We’re both attorneys working at Plews Shadley Racher & Braun LLP in Indianapolis focusing on corporate insurance recovery, though we handle individual recoveries as well.

Insurance affects everyone—companies and individuals.  Liability, property, auto, life—you cannot avoid insurance. I’ll admit it—not all insurance companies are bad. If an insurer does what it’s supposed to do, we don’t hear about it. However, we’ve seen enough to know that insurers sometime take ridiculous positions.

We’re not personal injury attorneys, but the premise of a lot of their commercials is right: When dealing with insurance companies, know your rights. Arguing with the insurance companies is a daunting task. Most of the time, you don’t have the policy to review. Even if you have the policy, they are written in such a way the average person can’t begin to understand it. Unfortunately, policyholders often have to hire an attorney to get the issue resolved.

If you find yourself in a battle with your insurer, don’t give up hope. As a policyholder you have generally have the law on your side. Hopefully with this blog, we’ll be able to share some of our knowledge and experience to help you work through your issues.