Washington State Insurance Practice Exam

What is the consequence of not having sufficient excess liability insurance?

1. The insurer can automatically renew the policy

2. The policyholder may become financially liable for damages exceeding primary insurance limits

3. It will lower the premiums on the primary insurance

4. The coverage will still apply regardless of the primary insurance limits

The correct answer is: The policyholder may become financially liable for damages exceeding primary insurance limits

Not having sufficient excess liability insurance can lead to significant financial consequences for the policyholder. If they find themselves in a situation where damages exceed the limits of their primary insurance coverage, they could be held personally responsible for paying the remaining amount. This means that any costs beyond what the primary insurance covers would have to be paid out of pocket, potentially leading to substantial financial strain or hardship. Having adequate excess liability insurance is essential in protecting oneself from these larger claims, ensuring that one does not face an overwhelming financial burden in the event of a serious liability incident. Such coverage acts as a safety net, stepping in after the primary insurance limits are exhausted, thereby providing an additional layer of financial protection against unforeseen liabilities.