Excess insurance is purchased to guarantee payment above the self-insured threshold.

• A. To cover losses below the threshold
• B. To cover losses above the threshold
• C. It replaces the need for a self-insured retention
• D. It is only for very large employers

Answer: (B)

Excess insurance sits above the amount the employer self-insures. The self-insured retention is the threshold the employer must pay out of pocket before the excess coverage starts to pay. So, excess insurance is designed to cover the portion of losses that exceed that threshold, up to the policy limit. It does not pay for losses that occur below the threshold, and it does not replace the self-insured retention. It’s also not limited to only very large employers; any self-insuring employer can use excess coverage to cap exposure on high-severity losses.