What characterizes primary and excess insurance coverage?

Primary and excess insurance coverage is characterized by the way claims are handled in terms of payment priorities. Primary insurance is the first layer of coverage that responds to a loss, meaning that when an insured event occurs, the claim is first submitted to the primary insurer, which pays for covered losses up to its policy limits.

Excess insurance comes into play after the limits of the primary insurance policy have been exhausted. It covers additional amounts beyond what the primary policy has paid, effectively providing a secondary layer of protection. This means that the excess insurance policy will cover losses only after the primary insurance has fulfilled its obligations.

This structure ensures that the insured has a clearer understanding of how claims will be paid and helps manage the overall risk since the primary policy handles initial claims while the excess policy provides further coverage when larger losses occur. Thus, the correct answer accurately describes the relationship between primary and excess insurance, clarifying their respective roles in the insurance process.