Registered Insurance Brokers of Ontario (RIBO) Practice Exam

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What is the primary function of an Umbrella Policy?

To replace other insurance policies
To provide excess insurance over another policy
To cover natural disasters only
To serve as a standalone insurance policy

The correct answer is: To provide excess insurance over another policy

The primary function of an Umbrella Policy is indeed to provide excess insurance over another policy. An Umbrella Policy is designed to offer additional liability coverage beyond the limits of the underlying policies, such as homeowners or auto insurance. This means that if a claim exceeds the limits of those primary policies, the Umbrella Policy kicks in to cover the additional costs, providing an extra layer of financial protection. This type of policy is particularly useful in situations where high-value claims could arise, offering peace of mind to policyholders by safeguarding their assets against significant losses. Understanding this function clarifies why it is integral to protecting against substantial liability risks without necessarily serving as a replacement for existing insurance or being limited to specific types of coverage like natural disasters.