Primary insurance: Overview, definition, and example
What is primary insurance?
Primary insurance is the first layer of insurance coverage that pays for claims or losses up to the policy limits. It is the insurance policy that responds first when a covered loss occurs, before any other secondary or excess insurance policies come into play. Primary insurance typically provides the basic level of coverage, whether for health, auto, homeowners, or liability insurance. Once the claim exceeds the limits of the primary insurance, secondary insurance may provide additional coverage.
For example, if a driver is in an accident and has auto insurance, their primary auto insurance policy will pay for repairs or medical bills up to the policy limits before any secondary insurance (e.g., an umbrella policy) kicks in.
Why is primary insurance important?
Primary insurance is important because it provides the essential financial protection for policyholders when they face a covered loss. It is the first line of defense against financial hardship in case of accidents, injuries, or other covered events. Having primary insurance ensures that individuals and businesses have the basic coverage they need, and it can prevent significant out-of-pocket expenses.
In cases where secondary or excess insurance exists, primary insurance helps limit the amount of financial risk, as it will pay for the initial claim, leaving other insurance policies to cover additional costs or claims that exceed the primary policy limits.
Understanding primary insurance through an example
Imagine an individual who has health insurance through their employer, which is their primary insurance. If the individual needs surgery and the procedure costs $20,000, the primary insurance policy will cover the medical expenses according to the terms of the policy (e.g., after deductibles, copayments, etc.). If the individual also has secondary health insurance through their spouse’s employer, this secondary insurance may cover any remaining costs after the primary insurance pays.
In another example, a business may have general liability insurance as primary coverage. If someone is injured on the business’s premises and the claim exceeds the limits of the primary general liability policy, the business may have umbrella insurance, which acts as secondary coverage to pay for any additional costs above the primary policy's limits.
An example of a primary insurance clause
Here’s how a clause about primary insurance might appear in a contract:
“The Contractor agrees to maintain primary liability insurance with limits of at least $1,000,000 for bodily injury and property damage. This primary insurance will be the first to respond in the event of a claim, with any additional coverage provided by secondary or excess insurance policies.”
Conclusion
Primary insurance is the first layer of coverage that responds to claims and losses, providing the initial protection needed in the event of an accident, injury, or damage. It ensures that policyholders have a basic level of coverage, and in cases where secondary or excess insurance is present, it acts as the first point of contact for claims. Understanding primary insurance is essential for managing risk and ensuring that financial protection is in place to handle covered events effectively.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.