Texas Property and Casualty License Practice Exam

In insurance terms, what is the role of Primary insurance?

1. To pay only after all other insurance policies have been exhausted

2. To pay the insured directly for the total loss amount

3. To cover the initial claim amounts up to the policy limit

4. To pay for any damages only after deductibles are met

The correct answer is: To cover the initial claim amounts up to the policy limit

Primary insurance refers to the type of insurance coverage that responds first to a loss when there is more than one policy in effect. This means that primary insurance covers the initial claim amounts up to the policy limit specified in the insurance contract. In the event of a claim, the primary insurer will handle the coverage first, providing benefits to the policyholder without the need for any other policies to be triggered before it pays out. This is significantly important in complex insurance situations where multiple policies could potentially apply. The existence of primary insurance ensures that the insured will have coverage that facilitates immediate financial support for losses within agreed limits, streamlining the claims process for the insured party. In contrast, other options involve additional conditions or different mechanisms of coverage that do not accurately represent the primary function of primary insurance. For instance, waiting for other insurance to be exhausted, or only covering costs after a deductible, or paying the total loss amount directly, are characteristics of secondary or excess insurance policies rather than primary insurance.