Washington State Insurance Practice Exam

What is the primary purpose of "excess liability insurance"?

1. To cover basic medical costs after an accident

2. To provide coverage when the limits of a primary policy are reached

3. To offer total coverage regardless of limits

4. To reduce the premiums paid on primary insurance

The correct answer is: To provide coverage when the limits of a primary policy are reached

The primary purpose of excess liability insurance is to provide coverage when the limits of a primary policy are reached. This type of insurance serves as an additional layer of protection, kicking in to cover claims that exceed the limits set by the underlying primary policy. For example, if an individual has a general liability policy with a limit of $1 million and an incident results in damages of $1.5 million, the primary policy would cover the first $1 million, while the excess liability insurance would cover the remaining $500,000. This feature is crucial for protecting assets and financial well-being, especially in situations where significant liability exposure exists. In contrast, other options do not accurately reflect the function of excess liability insurance. It does not specifically aim to cover basic medical costs after an accident or provide total coverage without limits, as neither of these scenarios encompass the intended use of excess coverage. Additionally, while it can potentially lead to lower overall liability costs by providing broader coverage, the primary driving factor is not to reduce premiums on primary insurance, but rather to enhance protection beyond the limits of those primary policies.