Primary And Excess Insurance Example

Absolutely! Here’s a breakdown of primary and excess insurance with a clear example:

Understanding Primary and Excess Insurance

• Primary Insurance: This is your first line of coverage. It kicks in immediately when you have a covered loss or event. Your primary insurance policy will have a coverage limit (the maximum amount it will pay out).
• Excess Insurance: This is an additional layer of coverage that activates only after your primary insurance’s limit has been exhausted. It’s designed to provide protection against particularly expensive or catastrophic claims.

Example

Let’s say you have auto insurance with the following coverage:

• Primary Insurance:

  • Bodily Injury Liability: $100,000 per person / $300,000 per accident
  • Property Damage Liability: $50,000 per accident

• Excess Insurance (often an Umbrella policy):

  • Additional liability coverage of $1 million

Scenario: You are involved in a serious car accident where you are at fault. The costs are as follows:

• Medical bills for the other driver: $250,000
• Damage to the other driver’s vehicle: $75,000
• Legal fees: $25,000

How the Insurance Works:

1. Primary Insurance: Your primary insurance would cover:

   • Bodily injury up to its limit: $100,000
   • Property damage up to its limit: $50,000
   • Legal fees: $25,000

2. Excess Insurance: Since the costs exceed your primary coverage, your excess liability policy would then cover:

   • Remaining bodily injury expenses: $150,000

Total Payout:

• Primary Insurance: $175,000
• Excess Insurance: $150,000

Key Points

• Without excess insurance, you could be personally liable for the remaining costs in this scenario.
• Excess insurance is often very affordable compared to the level of protection it offers.
• A common type of excess insurance is an umbrella policy, which can cover various liabilities beyond just your car or home insurance.