What differentiates primary insurance from excess insurance?

The differentiation between primary insurance and excess insurance primarily lies in the order and conditions under which they provide coverage. Primary insurance is designed to pay out first in the event of a covered loss, up to the specified limit of the policy. This means that when a claim is made, the primary insurance provider will be the first to process and pay out funds pertaining to that claim.

Excess insurance, on the other hand, provides additional coverage that comes into play only after the limits of the primary insurance policy have been exhausted. This type of insurance kicks in when the loss amount surpasses the coverage provided by the primary insurance, effectively acting as a supplementary layer of protection. Therefore, the correct choice accurately describes this fundamental difference: primary insurance pays first, and excess insurance provides coverage beyond that limit, offering added financial security in situations where losses exceed the primary policy's coverage amount.

This understanding is critical in risk management and insurance planning, as it helps policyholders ensure they have adequate coverage for potentially large claims while maximizing their insurance strategy.