Texas Property and Casualty License Practice Exam

What does Excess insurance do in relation to a primary insurance policy?

1. It replaces the primary insurance in case of a total loss

2. It pays for additional costs beyond the primary insurance limits

3. It covers losses when primary insurance has not been used

4. It only applies to specific types of losses, such as theft

The correct answer is: It pays for additional costs beyond the primary insurance limits

Excess insurance provides coverage that kicks in after the limits of a primary insurance policy have been exhausted. This means that if a policyholder faces a claim that exceeds the amount covered by their primary insurance, the excess policy will cover the additional costs. This type of insurance is essential for individuals or businesses that want extra protection beyond what their primary insurance can provide, ensuring that they are not left vulnerable to large financial losses. The other options do not accurately describe the function of excess insurance. For instance, replacing the primary insurance in case of a total loss implies a completely different role, which is not aligned with the purpose of excess coverage. Additionally, while excess insurance addresses costs that exceed the primary policy's limits, it does not come into play when the primary policy has not been used or does not cover certain types of losses. In this context, excess insurance complements rather than replaces primary insurance, focusing specifically on providing additional coverage once primary limits have been reached.