What is the difference between primary insurance and excess insurance?

Primary insurance and excess insurance serve distinct roles within the framework of risk management and coverage in the insurance industry. Primary insurance is the coverage that responds first to a claim; it pays out up to its limits when a loss occurs. The idea is that this layer of insurance provides the initial protection against risks.

Excess insurance, on the other hand, comes into play only after the limits of primary insurance have been exhausted. This means that if a claim exceeds the coverage limits of the primary policy, the excess insurance will then pay for the remaining costs. Essentially, excess insurance provides an additional layer of protection above and beyond what primary insurance covers, which is especially beneficial for higher-value risks or potential large losses.

This differentiation is crucial for policyholders to understand when strategizing how to manage their insurance needs, as it influences how claims will be handled financially in the event of loss or damage. Properly utilizing both primary and excess insurance can help ensure comprehensive coverage.