Excess insurance is a type of
liability insurance
Liability insurance (also called third-party insurance) is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims and protects the in ...
that provides coverage for losses exceeding the limits of an underlying primary
insurance policy
In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claim (legal), claims which the insurer is law, legally required to pay. In exchange for an initial ...
. Unlike primary
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
, which responds first to a claim up to its specified limit, excess insurance activates only after the primary coverage is exhausted, offering additional financial protection against significant or catastrophic losses. For example, if a primary
auto insurance
Vehicle insurance (also known as car insurance, motor insurance, or auto insurance) is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury ...
policy has a liability limit of $100,000 and a claim amounts to $150,000, an excess policy with a $50,000 limit would cover the remaining $50,000 after the primary policy pays out.
Excess insurance is commonly used in personal and commercial contexts and is distinct from
umbrella insurance
Umbrella insurance is a form of liability insurance that provides coverage when liability exceeds the limits of other insurance policies, such as auto insurance or homeowners insurance. It can also act as primary insurance for losses not covered b ...
, though the terms are sometimes confused in casual usage. In British English, "excess" also refers to a
deductible
In an insurance policy, the deductible (in British English, the excess) is the amount paid
Out-of-pocket expenses, out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term ''deductible'' m ...
—the amount a policyholder pays out-of-pocket before insurance kicks in—but here it denotes additional coverage layers.
Types of excess insurance
Excess insurance can take several forms, depending on its structure and purpose:
* Stand-Alone Excess Policies: These have their own terms, conditions, and exclusions, independent of the primary policy. They are tailored to specific risks or higher limits.
* Follow-Form Excess Policies: These mirror the terms and coverage of the underlying primary policy, only extending the financial limit. They are common in commercial insurance.
* Excess Liability Insurance: Focused on
liability claims, this type protects against large judgments or settlements beyond primary coverage.
Excess insurance differs from
umbrella insurance
Umbrella insurance is a form of liability insurance that provides coverage when liability exceeds the limits of other insurance policies, such as auto insurance or homeowners insurance. It can also act as primary insurance for losses not covered b ...
. While both provide coverage above primary limits, umbrella policies often broaden the scope of coverage (e.g., including risks not covered by the primary policy), whereas excess insurance typically adheres to the primary policy's scope, only increasing the monetary ceiling.
See also
*
Umbrella insurance
Umbrella insurance is a form of liability insurance that provides coverage when liability exceeds the limits of other insurance policies, such as auto insurance or homeowners insurance. It can also act as primary insurance for losses not covered b ...
*
Deductible
In an insurance policy, the deductible (in British English, the excess) is the amount paid
Out-of-pocket expenses, out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term ''deductible'' m ...
*
Liability insurance
Liability insurance (also called third-party insurance) is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims and protects the in ...
*
Risk management
Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
References
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Liability insurance