What is the purpose of excess insurance?

The purpose of excess insurance is to provide additional coverage above a specified limit. This type of insurance comes into play when a policyholder has reached the maximum amount that their primary insurance coverage will pay. For example, if a homeowner has a liability insurance policy with a limit of $300,000 and faces a lawsuit resulting in damages of $500,000, the excess insurance would cover the additional $200,000, ensuring that the policyholder is protected beyond the primary limit.

Excess insurance is particularly valuable for individuals or businesses that may face significant liability risks, as it provides an additional layer of financial security without needing to significantly increase the limits of the primary insurance. It essentially acts as a safeguard against large losses that exceed standard policy limits, thereby offering peace of mind in potentially devastating financial situations.