What does the 'excess insurance' policy cover?

An excess insurance policy is designed to provide additional coverage that activates when the limits of a primary insurance policy have been fully utilized. This means that if the costs associated with a claim exceed the coverage limit of the primary policy, the excess insurance will cover the remaining expenses up to its own limit.

This type of policy is particularly valuable for individuals or businesses that may face significant liabilities that exceed their basic policy limits, ensuring greater financial protection. For example, if a primary general liability policy has a limit of $1 million and a claim arises that costs $1.5 million, the primary policy would cover the first $1 million, while the excess policy would provide coverage for the remaining $500,000, thereby protecting the insured from significant out-of-pocket expenses.

The other options do not accurately reflect the nature of excess insurance. Basic coverage for all types of losses suggests a more general insurance approach, while limiting coverage solely to natural disaster losses is not characteristic of excess insurance. Finally, the notion of coverage lasting beyond the policy term does not pertain to the functionality of excess insurance, which is primarily based on the relationship to a primary policy's limits.