Georgia Property & Casualty Practice Exam

How does a lapse in insurance affect Zahra’s umbrella policy claim for an accident?

1. A.) Insurance would revert to original limits

2. B.) Umbrella claims remain unaffected despite lapses

3. C.) The umbrella coverage is invalidated

4. D.) The claim would process with basic coverage only

The correct answer is: C.) The umbrella coverage is invalidated

When an umbrella policy is involved, it is typically designed to provide additional liability coverage above and beyond the limits of underlying policies, such as home or auto insurance. If there is a lapse in the underlying insurance policies, the umbrella policy may become invalidated. This means that the umbrella coverage will not respond to claims if the essential underlying insurance is not active at the time of the accident. Lapses can occur for various reasons, such as non-payment of premiums or failure to renew. In these scenarios, the umbrella policy cannot provide coverage because its effectiveness is contingent upon the existence of the underlying coverage. Therefore, if Zahra experienced a lapse in her underlying policies, her umbrella policy would not apply to any claims made as a result of that accident. Understanding the relationship between an umbrella policy and its underlying coverages is crucial for policyholders, as maintaining those underlying insurances is necessary for the umbrella to provide its protective benefits.