Excess Insurance

Excess insurance, also known as excess liability insurance, is a type of insurance that provides coverage above and beyond the limits of an underlying insurance policy. It acts as a secondary layer of protection, kicking in when the coverage limits of the primary policy are exhausted.

Here are some key aspects of excess insurance

• Purpose: Excess insurance provides additional coverage for catastrophic losses or large liability claims that exceed the limits of the primary insurance policy.
• Types of Coverage: Excess insurance can be used to extend the coverage of various types of insurance, including:
• Auto insurance: Provides additional liability coverage beyond the limits of the primary auto policy.
• Homeowner’s insurance: Offers extra liability coverage for claims exceeding the homeowner’s policy limits.
• Commercial liability insurance: Extends coverage for large liability claims against businesses.
• Following Form: Excess insurance policies often “follow form,” meaning they have the same terms and conditions as the underlying policy, except for the coverage limits.
• Cost: Excess insurance is typically more affordable than purchasing higher limits on the primary policy, as it only covers losses that exceed the underlying limits.

Example

A business has a general liability insurance policy with a limit of $1 million. They also purchase an excess liability policy with a limit of $5 million. If a claim against the business results in a $3 million judgment, the primary policy will pay $1 million, and the excess policy will cover the remaining $2 million.

Excess insurance provides an important safety net for individuals and businesses, protecting them from potentially devastating financial losses in case of large or unexpected claims. It allows them to maintain adequate coverage without having to pay the high premiums associated with significantly increasing the limits of their primary insurance policies.