Question

An Umbrella Policy may be broader than the underlying policies and respond as primary coverage. When the Umbrella is PRIMARY, there is an amount to be paid by the insured before the Umbrella will pay. What is this amount called?

1) Primary coverage
2) Umbrella coverage
3) Deductible amount
4) Premium payment

Answer 1

The amount a policyholder must pay before their Umbrella Policy pays as primary coverage is called a deductible. This serves to reduce moral hazard by giving the policyholder a financial stake in their insurance claims.

Step-by-step explanation:

When an Umbrella Policy acts as primary coverage and responds to a claim before the underlying liability policies, the insured must pay an amount before the umbrella coverage takes effect. This amount is referred to as the deductible. It represents the out-of-pocket expense policyholders are responsible for before they can benefit from insurance coverage. Deductibles, along with copayments and coinsurance, are designed to reduce the moral hazard by ensuring that the policyholder has some stake in the cost of the claim, thereby potentially encouraging more responsible behavior.