When an umbrella policy pays a loss not covered by the underlying policy, it usually pays what?

An umbrella policy is designed to provide additional liability coverage beyond what is offered by underlying insurance policies, such as auto or homeowners insurance. When a loss occurs that is not covered by the underlying policy, the umbrella policy typically steps in to cover the amount that exceeds a specified self-insured retention limit. This self-insured retention acts as a threshold that the insured must meet before the umbrella coverage applies.

It is important to understand that the umbrella policy functions as a supplemental layer of protection, covering losses that surpass the limits of the underlying policies, as well as some risks that may not be covered at all by them. When a loss not covered by the primary insurance arises, the umbrella kicks in only after this retention amount is met, thereby covering the additional expenses incurred from that point forward. This structure allows policyholders to have broader coverage without needing to claim minor or intermediate losses directly, providing substantial financial protection against severe claims.

Other options do not align with the typical functioning of an umbrella policy: paying a percentage of the loss does not accurately reflect how umbrella policies work, as they usually provide coverage for the full amount above the retention; specifying a flat amount disregards the personalized nature of coverage limits set by each policy; and covering the amount in excess of