Alabama Property and Casualty Practice Exam

What is true about an umbrella liability policy?

1. they are extremely expensive

2. they are designed to be the primary payor

3. they are written for excessive amounts

4. they are the same as excess liability policies

The correct answer is: they are written for excessive amounts

An umbrella liability policy is characterized by its provision of coverage in excessive amounts beyond the limits of underlying policies, such as homeowners, auto, or other liability insurance. This type of policy is designed to offer an extra layer of protection, ensuring that policyholders have more comprehensive coverage in the event of significant claims or lawsuits. This is particularly valuable in scenarios where the underlying policy limits may be insufficient to cover large judgments or settlements. By providing coverage limits that are higher than standard policies, umbrella liability insurance helps shield individuals and families from potentially devastating financial consequences arising from significant accidents or injuries. While some may perceive the cost of umbrella policies as high, they typically offer a cost-effective way to increase liability coverage significantly, making them affordable relative to the amount of coverage provided. Also, umbrella policies act as secondary coverage, not as primary payors, and although they share similarities with excess liability policies, they include additional broader coverage features beyond just excess liability.