Excess Insurance
What Does Excess Insurance Mean?
Excess insurance is coverage that activates once a specific loss amount is reached. At that point, the insurer covers losses beyond that threshold, up to the policy limit. Policyholders with a primary insurance policy often purchase excess insurance as an additional layer of protection.
Insuranceopedia Explains Excess Insurance
Excess insurance does not alter or expand the specific covered perils; rather, it increases the available funds to cover the same perils addressed by the primary insurance policy. In other words, it supplements the primary insurance. For example, if a person has a primary insurance policy covering $100,000 in losses and an excess policy covering an additional $50,000, both policies would contribute if a covered loss exceeds the primary policy’s limit. Thus, if the policyholder incurs $125,000 in losses, the excess policy would cover the remaining $25,000 after the primary coverage is exhausted.
Excess insurance is often confused with commercial umbrella insurance, but the two are different. An umbrella policy can cover perils outside the primary policy, while excess insurance only extends the dollar limits of the same perils already covered.
Businesses commonly buy excess insurance on top of a general liability insurance policy when their exposure to lawsuits or claims is higher than what the primary policy’s limits can handle on their own.
