Finance
Fact-checked

At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What Is an Excess Limit?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum

An excess limit is a provision within a contract that is above and beyond what is considered the normal or standard limit for the agreement. Typically, this higher limit is available when and as specified events or circumstances should arise. Often, there is a need for the parties involved in the contract to confer with one another, determine if recent events are in compliance with the conditions noted in the agreement to allow the activation of the excess limit, and proceed accordingly.

One of the more common examples of contracts that may contain an excess limit is insurance coverage that includes liability insurance. For most situations covered under the terms of the policy, the standard limit will prevail. If an excess limit is identified with the terms and conditions of the plan, the insurer will note the circumstances that must exist before the higher limit can be claimed. It is not unusual for specific conditions to be found within the terms, making it easier to decide if a given situation qualifies for the additional benefit.

Man climbing a rope
Man climbing a rope

In addition to an excess limit having to do with the extension of additional benefits for certain types of events and situations, the term can also be used in a different way. An excess limit may also have to do with the level of protection extended on a related insurance policy, such as one that is slated to begin paying benefits once the benefits associated with a primary policy have been exhausted. This approach of using a primary and secondary policy is not uncommon, and may be used to protect real estate and other forms of property, or even provide additional liability coverage for certain types of professionals.

The important thing to remember about an excess limit is that the coverage has to do with the occurrence of certain events that are considered outside the scope of the basic limit. Depending on the nature of the limited type of events that may be subject to the higher limit, including this type of coverage in the policy may or may not be cost-effective. In the event that the individual or business seeking insurance protection finds that the scope of events that are eligible for an excess limit are highly unlikely to occur, checking to determine how much is added to the premium in order to secure the additional cover is important. Should the policyholder believe the cost does not justify the additional coverage, there is often the possibility of removing the clauses relating to the additional benefits and enjoying a lower premium.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...
Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Man climbing a rope
      Man climbing a rope