What is one key difference between excess insurance and primary insurance?

Excess insurance is designed to provide coverage on top of an existing primary insurance policy. It only pays out claims after the limits of the primary insurance have been exhausted. This characteristic is what differentiates it from primary insurance, which is the first layer of coverage that responds to claims.

In many cases, organizations or individuals maintain a primary policy to cover standard risks, but as exposure increases or specific high-value assets come into play, they may secure excess coverage to ensure they are protected beyond those primary limits. This means that excess insurance serves as an additional layer intended to give extra protection for substantial losses that exceed what the primary policy can cover.

The other options present various attributes or interpretations of excess insurance that do not accurately capture its primary function. For example, while excess insurance can sometimes be more affordable depending on various factors, affordability is not a defining characteristic. Similarly, the notion that excess insurance applies to specific risks only does not align with its broader purpose of providing coverage for damages beyond primary insurance limits; rather, it generally complements various types of primary coverage. Finally, while excess insurance can cover a range of damages, it does not universally cover all damages as it is contingent upon the existing primary coverage and only activates once that coverage has been exhausted.