Texas General Lines — Property and CasualtyPersonal LinesHard
An insured has a Personal Umbrella Policy with a self-insured retention (SIR) of $1,000. If an underlying policy has a limit of $300,000 and the insured is found liable for a $350,000 loss not covered by the underlying policy, how much would the umbrella policy pay?
- A$350,000
- B$50,000
- C$49,000
- D$349,000
Show answer & explanationAnswer & explanation
Correct answer: D. $349,000
The self-insured retention (SIR) applies when the umbrella policy is primary for a loss not covered by an underlying policy. In this case, the umbrella pays the $350,000 loss minus the $1,000 SIR, resulting in a $349,000 payment.
Why the other options are wrong
- A. This would be the payment if no SIR applied.
- B. This would be the payment if an underlying policy covered the first $300,000, but the scenario states the loss is 'not covered by the underlying policy'.
- C. This calculation is incorrect and misapplies the SIR or underlying policy.
Self-Insured Retention (SIR)
A deductible-like amount in a Personal Umbrella Policy that the insured must pay out-of-pocket when a loss is covered by the umbrella but not by any underlying primary insurance.
- Applies when the umbrella policy acts as primary coverage.
- Does NOT apply if an underlying policy covers the loss, even if the underlying limit is exhausted.
- Functions like a deductible for specific types of claims.
Memory trick: The SIR is your personal 'deductible' when the umbrella is the first responder.