Assume a jury ordered your business to pay $3 million in damages for a liability claim, but your general liability policy has a $2 million limit. Your company would normally be required to cover the additional $1 million. However, with a $4 million ELI policy, the $2 million commercial policy would exhaust, and then the umbrella policy would cover the outstanding $1 million.
Ultimately, ELI acts as a sort of dual policy, providing coverage in two ways:
1. Paying liabilities in excess of existing policy limits
2. Providing coverage in areas not included with existing policies
You have already read how ELI acts with basic coverage to cover costs; however, it also provides extra coverage in other areas by using a self-insured retention (SIR), a dollar amount that functions like a deductible. In umbrella coverage, the SIR will vary by situation and by state, but it starts at $10,000. So if ELI is being used in areas without any other basic coverage, it will kick in after you pay the set SIR.
ELI is also beneficial because an effective policy can save your business money and cover more assets by using fewer individual policies. However, depending on your policy, some coverage may be excluded under ELI. Common exclusions include employment practices liability, professional liability and product recall coverage.