Alberta General Insurance Level 1 Practice Exam

Primary insurance and excess insurance serve distinct roles in the realm of risk coverage. Primary insurance is designed to cover losses up to a specific limit as the first line of defense. When a claim arises, the primary policy pays out first, fulfilling its contractual obligation up to that predetermined limit before any additional coverage is considered.

On the other hand, excess insurance comes into play only after the primary policy has exhausted its limits. It is specifically structured to provide additional coverage beyond what the primary insurance will pay. This means that once the limit of the primary insurance is reached, the excess insurance policy then becomes active and may cover the remaining costs, thus offering an added layer of financial protection.

The other options misrepresent how these policies function. The notion that excess insurance covers all claims automatically does not reflect the conditional nature of excess policies, which only respond once primary limits are exceeded. Additionally, stating that primary insurance is only applicable to property damage overlooks the diverse types of coverage it can provide, including liability and personal injury protections. Lastly, claiming that both policies function the same way contradicts their fundamental differences in priority of payment and claim handling.