Final answer:
An umbrella policy usually pays the excess over the self-insured retention when it covers a loss not included in the underlying policy. Self-insured retention is similar to a deductible and is the amount the insured must pay before the umbrella coverage kicks in.
Step-by-step explanation:
When discussing umbrella policies in the context of insurance, it's important to understand terms like deductible, coinsurance, and self-insured retention (SIR). These terms describe the various ways in which the costs of a loss are shared between the insurance policyholder and the insurance company.
To answer the student's question, when an umbrella policy is broader than the underlying insurance and pays a loss that is not covered by the underlying policy, it generally pays: 2. The excess over the self-insured retention. Self-Insured Retention (SIR) is a specific amount that an insured must pay out-of-pocket before the umbrella policy responds; this is akin to a deductible specifically for claims covered by the umbrella policy but not by the underlying policies.
Coinsurance is somewhat related but different, as it determines the percentage split of a covered loss between the insurer and insured after the deductible has been paid. It's essential to read the policy's terms thoroughly to understand how coinsurance, deductibles, and SIR apply to your specific policy.