Certified Financial Planner (CFP) Practice Exam 2025 – All-in-One Study Guide for Exam Success!

Question: 1 / 505

Why might a financial planner recommend a personal liability umbrella policy to a client?

To cover business-related injuries

To supplement existing insurance coverage

A financial planner might recommend a personal liability umbrella policy primarily to supplement existing insurance coverage. This additional layer provides extra protection beyond the limits of standard liability insurance policies such as homeowners or auto insurance. When a client faces a lawsuit or claims that exceed their primary insurance limits, the umbrella policy steps in to cover the additional costs, thus safeguarding the client's assets and future earnings.

This recommendation is particularly valuable for clients who have significant assets to protect or higher exposure to potential liabilities, such as those with public profiles or engaging in activities that might lead to increased risk. By enhancing existing coverage, an umbrella policy offers peace of mind, ensuring that the client is better prepared for unexpected circumstances that could lead to legal action or substantial financial loss.

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To eliminate the need for other insurance policies

To save on insurance premiums

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