CFP

Property, Casualty and Liability Insurance - Umbrella Liability Insurance

Practice Question:
Under which of the following circumstances would Part C- Uninsured Motorist pay a bodily injury claim to the insured under a personal automobile policy?

I. Punitive damages caused by an uninsured motorist
II. The insured person settles with the negligent party without the insurance company consent
III. The negligent driver had $100,000 of bodily injury liability coverage, but no Medical Payments under Part B
IV. The insured was a victim of hit-and-run, and the negligent driver was never caught

A. I and IV only
B. III only
C. III and IV only
D. IV only

Answer: D
Uninsured motorist coverage applies when the insured is injured by a vehicle that is uninsured, which includes a vehicle not covered for bodily injury liability, a hit-and-run vehicle, or a vehicle that was insured, but the insurance company is insolvent. It does NOT cover punitive or exemplary damages.

Practice Question:
Joyce was operating her automobile during a severe thunderstorm and hit a horse that wandered onto the road which destroyed the front of her car. Joyce was taken to the hospital in an ambulance for precautionary reasons and treatment of minor injuries. The owner of the ranch claimed that this was his prize winning stud horse and decided to sue Joyce for negligent driving. Under which sections of her PAP policy could she be covered?

I. Bodily Injury/Property Damage
II. Medical Payments
III. Uninsured Motorists
IV. Comprehensive
V. Collision

A. I only
B. I, II, and IV only
C. I, II, and V only
D. I, II, III, IV, and V

Answer: B
The Property Damage (Part A) coverage will cover the claim filed by the rancher for his horse; the Medical Payments (Part B) will cover Joyce's medical expenses. Repairs to Joyce's car will be made under her Comprehensive (Part D) coverage which applies to hitting a bird or other animal.

Umbrella Liability Insurance
Your auto and homeowners policies have at least some liability insurance that could be used to settle legal claims. But what if a settlement (or judgment, if it goes to court) is $500,000 and you only have $250,000 of liability insurance? The insurer would pay its $250,000, but where are you going to get the other $250,000? An umbrella liability policy is the answer in protecting this additional risk element.

A Personal Umbrella Liability policy is a form of excess liability that acts as a "second line of defense" to policyholders if they are sued in excess of their base or underlying policy limits. The umbrella liability will also cover certain additional perils which may not be included in personal liability forms such as libel, slander, defamation of character or invasion of rights or privacy, false arrest, liability assumed under some contracts and liability incurred as the result of volunteer work in a non-profit organization.

Umbrella Liability also provides excess coverage to several different "personal insurance" policy types such as property, auto and watercraft. Umbrella liability insurance policies are typically issued at $1 million, $2 million and sometimes even $5 million of coverage on top of what your basic policies will pay. For the protection offered, umbrella liability coverage is not very expensive- premiums are usually $250 to $350 a year for $1 million worth of coverage.



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