How do primary and excess coverage differ?

Understanding the distinction between primary and excess coverage is crucial in insurance. Primary coverage refers to the insurance that pays out first when a claim is made. This type of coverage responds to losses up to the policy limit, and it is the first line of defense for the insured when an incident occurs.

In contrast, excess coverage is designed to kick in only after the primary coverage has been exhausted. It provides additional limits of liability or coverage beyond what the primary policy provides. For example, if a primary policy has a coverage limit of $100,000 and the loss amounts to $150,000, the primary policy will pay the first $100,000, and then the excess policy will cover the remaining $50,000. Therefore, the correct understanding is that primary coverage covers the immediate claims first, while excess coverage comes into effect only after the primary has paid out.

The other options do not accurately describe the roles of primary and excess coverage. For instance, excess coverage can also address more types of risks, not limited specifically to damages or liabilities. Thus, option A captures the fundamental operation of these two types of insurance coverage in a clear and accurate manner.