What type of insurance pays until its coverage limit is exhausted at which point excess coverage takes over?

The correct answer relates to the nature of excess insurance, which is designed to provide coverage beyond the limits of another policy or coverage type. In this scenario, once the primary insurance coverage is exhausted, excess insurance takes effect and covers the additional amount, up to its own limits.

Understanding this concept is crucial in insurance because it highlights how multiple layers of coverage can work together in protecting against significant losses. Primary insurance typically pays first, and once that coverage reaches its limit, the excess insurance would then provide additional coverage. This hierarchical structure allows for better risk management and financial protection for insured parties facing large claims.