Georgia Property & Casualty Practice Exam

What is the consequence if an auto policy lapses before an accident occurs?

1. A.) The policy never needed renewal

2. B.) The insurer covers all claims regardless of lapsed status

3. C.) The insured receives no payout under the umbrella policy

4. D.) The insured can still claim full limits from the umbrella policy

The correct answer is: C.) The insured receives no payout under the umbrella policy

In the context of auto insurance, if a policy lapses before an accident occurs, the insured typically does not receive coverage for any claims resulting from that accident. This includes any associated umbrella policy as well. An umbrella policy is designed to provide additional coverage above and beyond the limits of the underlying auto policy. However, if the auto policy is not active, the umbrella policy doesn't kick in since it relies on the primary policy being in force. Thus, beyond the lapse of the auto policy, the claims arising from any incidents that occur during that lapse period will not be covered, leading to the consequence that the insured would receive no payout under the umbrella policy as well. This emphasizes the importance of maintaining continuous coverage to ensure that all insurance protections are available when needed. The other answer choices do not accurately reflect the implications of a lapsed policy. Thus, the correct understanding of the insurance coverage landscape in this scenario is crucial.