What is meant by 'excess coverage' in insurance?

Excess coverage refers to insurance that provides additional protection beyond the limits of an underlying policy. This type of coverage kicks in after the primary policy has been exhausted, ensuring that higher-value claims can be managed without the policyholder facing significant out-of-pocket expenses. It's crucial for businesses and individuals who may face substantial liabilities that could exceed standard policy limits, thereby providing an additional layer of financial security.

For instance, a business might have a general liability policy with a limit of $1 million; if it faces a claim of $2 million, the primary policy would cover the first $1 million, with excess coverage taking over for the remaining $1 million. This enhances the overall risk management strategy, allowing insured parties to safeguard against potentially catastrophic losses.

In contrast, other options relate to specific aspects of insurance but do not encapsulate the broader and critical function of excess coverage in risk management. For example, coverage that addresses only deductibles or secondary risks does not provide the comprehensive additional limits that excess coverage does. Similarly, basic liability coverage addressed in other options lacks the additional layer offered by excess coverage.