What does "excess insurance" provide to policyholders?

Excess insurance is designed to provide additional coverage beyond the limits of a primary insurance policy. This means that if a claim exceeds the coverage limits of the underlying policy, the excess insurance kicks in to cover costs up to its limits. This type of coverage is particularly important for policyholders who might have significant exposure to large claims, as it helps to protect their assets against higher-than-expected liabilities.

For instance, if someone has a primary liability policy with a limit of $1 million and an incident causes $1.5 million in damages, the excess insurance would cover the additional $500,000. This feature makes excess insurance a critical component of risk management for individuals and businesses who wish to ensure they are adequately protected against potential large claims that could otherwise lead to substantial financial loss.

Other options do not accurately reflect the function of excess insurance. Basic coverage refers generally to standard policies that cover typical risks, mandatory coverage is often related to compliance requirements, and coverage related to only property damage does not encompass the broader applications of excess insurance, which can apply to various types of liability beyond just property damage.