What is the purpose of a Retention Limit in an Umbrella Liability policy?

The purpose of a Retention Limit in an Umbrella Liability policy is to establish the amount that the insured must pay out-of-pocket before the umbrella policy begins to pay for claims. This retention amount acts as a deductible, meaning that if a claim arises, the insured first needs to cover expenses up to that specified limit. Only after this threshold has been reached will the umbrella policy provide additional coverage, which supplements underlying policies like homeowners or auto insurance.

This concept is crucial, as it emphasizes the insured's responsibility for a portion of their liability. Understanding retention limits helps individuals gauge the financial risk they bear and how much excess liability coverage they need above their existing policies.

The other choices refer to different aspects of insurance policies: the maximum payout by the insurer, influence on premium amounts, or exclusions, which do not pertain to the defined function of a Retention Limit in this context.