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Insurance · Umbrella and Excess

What triggers an umbrella policy to pay a claim?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

Two conditions: the underlying policy limit must be exhausted AND the claim must be within the umbrella's coverage territory

  1. A The insured must specifically request umbrella coverage for each claim
  2. B Only after a lawsuit has been filed
  3. C Two conditions: the underlying policy limit must be exhausted AND the claim must be within the umbrella's coverage territory
  4. D Any loss exceeding $1,000

Why this is the answer

Umbrella coverage activates when: (1) the underlying policy's limit has been fully paid out (the underlying limit is 'exhausted'); AND (2) the claim is within the scope of the umbrella policy's coverage. The umbrella then pays excess amounts up to its own limit. If the underlying policy doesn't cover the claim at all (e.g., business liability on a personal umbrella), the umbrella may still respond depending on its 'drop-down' provisions. Maintaining required underlying limits is essential — if underlying limits are below the umbrella's requirement, a gap can exist.
Source: P&C Exam, Umbrella Trigger Conditions

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About this topic: Umbrella and Excess

Umbrella and excess liability questions cover how these policies sit above underlying coverage, retained limits, drop-down coverage and the requirement to maintain underlying limits. This is one of 5 Casualty Insurance questions on umbrella and excess, each with a full explanation on a single study page.

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