State Farm Insurance License Practice Exam

Which coverage applies when multiple policies exist for the same loss?

1. Primary insurance

2. Excess insurance

3. Reinsurance

4. Comprehensive coverage

The correct answer is: Excess insurance

Excess insurance refers to coverage that kicks in after a primary insurance policy has reached its limits. When multiple policies exist for the same loss, excess insurance plays a crucial role by providing additional coverage beyond the primary policy's limits. This can come into play for events where damages exceed what the first policy can cover, ensuring that the insured does not have to bear those excess costs entirely out of pocket. In contrast, primary insurance is the main policy covering a risk, while reinsurance is a contract between insurers to share risk and does not apply directly to the insured. Comprehensive coverage typically pertains to specific types of losses, such as those covered under auto insurance but doesn't address how multiple policies would interact in covering a single loss. Understanding the nuances of excess insurance is key for managing risks effectively, especially in instances where liabilities or losses surpass primary coverage limits.