Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

What alternative coverage must be purchased when the Aggregate Limit is insufficient?

1. Excess Liability Policy

2. Umbrella Liability Policy

3. Commercial General Liability Policy

4. Errors and Omissions Insurance

The correct answer is: Umbrella Liability Policy

An Umbrella Liability Policy is designed to provide additional coverage when the limits of the underlying insurance policies, such as general liability or auto liability, are exhausted. In situations where the Aggregate Limit of a primary policy is insufficient to cover claims, the Umbrella Liability Policy kicks in to provide broader coverage and higher limits. This type of policy typically covers a wider range of incidents and includes additional protections that may not be available in primary policies. The need for such additional coverage often arises from the high costs associated with certain claims or legal judgments that exceed the original policy limits. An Umbrella Policy helps ensure that individuals or businesses are protected from the financial repercussions of catastrophic incidents, safeguarding their assets and providing peace of mind in the face of potentially substantial liabilities. Other options such as an Excess Liability Policy also provide additional coverage above a primary policy but may have more restrictive terms or conditions. The Commercial General Liability Policy functions primarily as a primary form of liability insurance, while Errors and Omissions Insurance is specifically tailored for professionals to protect against claims of negligence or inadequate work. Thus, in the context of addressing insufficient Aggregate Limits, choosing an Umbrella Liability Policy is the most comprehensive solution.