Texas Property and Casualty License Practice Exam 2025 – All-in-One Guide to Exam Success!

The primary purpose of an umbrella policy is to provide extra liability coverage beyond what is available through standard insurance policies, such as homeowners, auto, or boat insurance. This type of policy is designed to protect individuals from major claims and lawsuits that could exceed the limits of their primary insurance coverage. By offering higher limits of liability, an umbrella policy serves as an additional layer of financial protection, which can be crucial in the event of serious accidents, injuries, or property damage that could lead to significant legal costs or settlements.

In contrast, the other choices focus on more specific or alternative elements of insurance coverage. Basic auto coverage specifically addresses auto-related incidents and does not extend to broader liabilities. Coverage for floods is typically handled by separate flood insurance policies, not by umbrella policies. Lastly, while lowering premium costs can be a consideration when evaluating insurance needs, it is not the primary function of an umbrella policy. Instead, it focuses on enhancing liability coverage to ensure greater protection for the insured's assets.