Texas Property and Casualty License Practice Exam

Which of the following best describes a primary insurance policy?

1. Anticipates minor claims and limits payouts

2. Covers only catastrophic events and not smaller losses

3. Pays the initial claims before any excess insurance applies

4. Requires multiple endorsements to extend coverage

The correct answer is: Pays the initial claims before any excess insurance applies

A primary insurance policy is designed to pay out claims up to its limits before any excess or secondary coverage kicks in. This means that the primary insurer is responsible for covering the initial claims made by the policyholder, which is crucial for ensuring that the insured can cover typical losses without relying on additional layers of insurance. In contrast, some policies might anticipate only minor claims, cover only significant catastrophic events, or require multiple endorsements for expanded coverage, but these characteristics do not accurately define what a primary insurance policy does. The essence of a primary insurance policy is its role as the first layer of protection, making option C the most appropriate description of its function in the context of insurance coverage.