How does primary insurance differ from excess insurance?

Primary insurance is designed to be the first layer of coverage that responds to claims. When a loss occurs, primary insurance is the first to pay out up to its limit of coverage without requiring any other insurance to contribute. This means that in the event of a claim, the primary insurance will address the loss directly, making it essential for individuals and businesses to have in place to handle their basic risk needs.

In contrast, excess insurance typically provides coverage above and beyond what the primary insurance pays. It only comes into play once the limits of the primary policy have been exhausted. Understanding this hierarchy is crucial, as it impacts how risks are managed and what insurance products need to be secured to ensure adequate protection.

Recognizing the distinct roles of primary and excess insurance helps in effective risk management and ensures that policyholders comprehend the sequence of coverages available in the event of a loss.