Drop Down Coverage
What Does Drop Down Coverage Mean?
Drop-down coverage is an insurance policy that replaces another policy to cover the same risk. It comes into effect when the primary policy has been exhausted and cannot provide sufficient funds to cover a loss or damage.
Drop-down coverage is a feature of umbrella policies, particularly those purchased to supplement property or commercial insurance policies.
Insuranceopedia Explains Drop Down Coverage
Business owners can purchase an umbrella policy to gain additional protection for their liability or property insurance coverage. This type of policy serves as backup coverage in case the limits of the primary policy are exceeded. When this occurs, drop-down coverage from the umbrella policy comes into effect.
For example, suppose a policyholder has a primary policy that covers up to $100,000 in property damage, along with an umbrella policy that provides an additional $20,000 in coverage for property damage. If the policyholder files a claim for $110,000 in damages, they will first exhaust their primary coverage, after which the drop-down coverage from the umbrella policy will cover the remaining $10,000.
