What is the difference between a primary and an excess insurance policy?

The chosen answer accurately highlights the core distinction between primary and excess insurance policies. Primary insurance is designed to be the first line of defense when a claim is made; it pays for covered losses up to its limit before any other policies come into play. In contrast, excess insurance kicks in only after the primary policy has reached its limits. This means that if a loss exceeds the amount covered by the primary insurance, the excess insurance then provides additional coverage up to its own policy limits.

This structure is essential in insurance planning and risk management, as it allows individuals or businesses to have a layered approach to coverage. Primary policies typically have lower limits and more comprehensive coverage for specific risks, while excess policies provide a safeguard for larger losses, thus ensuring that a policyholder has adequate protection against severe financial impacts.

The other options do not adequately capture the unique roles these types of insurance policies play. For instance, while the cost difference can vary, it is not a definitive characteristic of primary versus excess insurance. Additionally, primary insurance does not solely cover medical expenses; it can cover a range of liabilities depending on the specific terms of the policy. Lastly, the assertion that there is no difference is incorrect, as each type of policy serves distinct functions in the overall insurance strategy.