Texas General Lines — Property and CasualtyPersonal LinesHard
A client has a Personal Umbrella Policy (PUP) with a $2,000,000 limit and a $10,000 Self-Insured Retention (SIR). They are sued for $1,500,000 for an incident that is covered by their PUP but NOT by their underlying homeowners or auto policies. How much will the PUP pay?
- A$1,500,000
- B$1,490,000
- C$0
- D$2,000,000
Show answer & explanationAnswer & explanation
Correct answer: B. $1,490,000
A Self-Insured Retention (SIR) is a deductible that applies when an umbrella policy is covering a loss not covered by the underlying insurance policies. In this case, the $1,500,000 loss is covered by the PUP but not by the underlying policies. Therefore, the SIR of $10,000 applies. The PUP will pay $1,500,000 (loss) - $10,000 (SIR) = $1,490,000.
Why the other options are wrong
- A. This is incorrect; the SIR must be applied since the underlying policies do not provide coverage.
- C. This is incorrect; the PUP does provide coverage, subject to the SIR.
- D. This is the policy limit, but the actual loss was $1,500,000, and the SIR applies.
PUP Self-Insured Retention (SIR)
A Self-Insured Retention (SIR) in a Personal Umbrella Policy acts like a deductible, applying to losses that are covered by the umbrella policy but are NOT covered by the underlying primary insurance policies.
- Only applies when underlying policies don't cover the loss.
- Must be satisfied by the insured before the umbrella policy pays.
- Differs from a standard deductible as it's typically much larger.
Memory trick: SIR is like a 'S'pecial 'I'nsured 'R'isk, only when 'U'nderlying policies 'F'ail.