Property and Casualty Insurance Practice Exam

What does 'excess insurance' typically provide?

1. Coverage that aligns with the primary policy

2. Compensation for lost income

3. Supplemental coverage above limits of primary insurance

4. Exclusive coverage for bodily injuries

The correct answer is: Supplemental coverage above limits of primary insurance

Excess insurance is designed to provide additional coverage above the limits of a primary insurance policy. This means that when the limits of the primary policy have been reached due to a claim, the excess insurance kicks in to cover the remaining costs. This type of coverage is particularly valuable in situations where potential liabilities exceed the coverage limits of the initial policy, offering an extra layer of financial protection. The other options do not accurately represent the primary function of excess insurance. While it is true that some aspects of coverage can align with the primary policy, the defining feature is the additional limit rather than alignment. Compensation for lost income is typically addressed through different types of insurance, such as business interruption insurance. Exclusive coverage for bodily injuries refers to specific types of policies that focus on personal injury, which is not the primary characteristic of excess insurance. Thus, the correct understanding of excess insurance is centered around its role in providing supplemental coverage above the limits of a primary insurance policy.