State Farm Insurance License Practice Exam

What is the function of excess insurance?

1. To provide liability coverage exclusively

2. To act as the primary insurance coverage

3. To cover losses above the limits of the primary coverage

4. To replace damaged property at full cost

The correct answer is: To cover losses above the limits of the primary coverage

The function of excess insurance is to cover losses that exceed the limits of the primary insurance coverage. Once the primary insurer has paid up to its limit, any additional costs associated with a covered loss will be addressed by the excess insurance policy. This type of coverage is particularly important for individuals or businesses that may face liability claims or damages that could surpass their existing insurance limits, ensuring they have additional financial protection in such cases. Additionally, other options do not accurately represent the role of excess insurance. Liability coverage alone, as mentioned in one option, doesn't encompass its broader purpose of providing additional limits. Similarly, while it might sound appealing, stating that excess insurance acts as the primary coverage mischaracterizes its function, as it is meant to supplement, not replace, the primary policy. Lastly, the notion of excess insurance replacing damaged property at full cost oversimplifies the nature of insurance claims, as compensation is typically subject to the terms and conditions of both the primary and excess policies.