Georgia Property & Casualty Practice Exam

What does a limit of liability on Zahra's umbrella policy indicate?

1. A.) Maximum payout in total for all claims

2. B.) Coverage extent for property damage only

3. C.) Coverage amount that exceeds the underlying auto policy

4. D.) Coverage for only bodily injury claims

The correct answer is: C.) Coverage amount that exceeds the underlying auto policy

A limit of liability on Zahra's umbrella policy signifies the maximum amount the policy will pay for claims that exceed the coverage limits of her underlying policies, such as her auto insurance. Umbrella insurance is designed to provide additional liability coverage above and beyond the limits of primary insurance policies. For instance, if Zahra's auto policy has a liability limit of $300,000 and a claim arises that costs $600,000, her umbrella policy would cover the amount above the $300,000 limit, up to the limit specified in the umbrella policy. This is crucial for protecting an individual's assets in the event of significant claims that surpass the primary insurance limits, ensuring broader financial protection. The context of the umbrella policy emphasizes its role in extending liability coverage rather than being limited to specific types of claims such as bodily injury or property damage alone.