In insurance, what does 'excess coverage' refer to?

Excess coverage specifically refers to an insurance policy that provides additional protection beyond the limits of a primary policy. This type of coverage is designed to kick in when a claim exceeds the maximum payout allowed by the primary insurance, allowing the policyholder to receive compensation for losses that surpass those limits.

In practical terms, if a business has a general liability insurance policy with a limit of $1 million and faces a lawsuit that results in a judgment of $1.5 million, excess coverage would help cover the additional $500,000, thus offering more financial security against significant losses. This distinction is critical for businesses and individuals to protect themselves fully against substantial risks, especially in scenarios where damages can exceed typical policy limits.

The other options do not accurately describe the concept of excess coverage; they pertain to different aspects of insurance policies, such as initial coverage levels, premium discounts, or automatic adjustments for inflation, which are not related to the idea of providing additional coverage beyond existing limits.