What Does Drop Down Coverage Mean?
Drop down coverage is an insurance policy that takes the place of another and covers the same risk. It comes into effect when the latter policy has been exhausted and cannot provide enough funds to cover a loss or damage.
Drop down coverage is a feature of umbrella policies, especially those purchased to supplement property or commercial insurance policies.
Insuranceopedia Explains Drop Down Coverage
Business owners can buy an umbrella policy to get additional protection for their liability or property insurance coverage. Its purpose is to provide some backup coverage in case the primary policy's maximum is exceeded. The drop down coverage comes into effect when this takes place.
Suppose, for instance, that a policyholder has a primary policy that covers $100,000 of property damage. In addition to this, they have an umbrella policy that provides another $20,000 in coverage for property damage. If the policyholder files a claim for damages that reach $110,000, they will first exhaust their primary coverage and then the drop down coverage from the umbrella policy will come into effect and pay the remaining $10,000.