What Is an Exclusion?
Exclusions specifically state the certain types of risk that are not covered by an insurance policy.
Insurance policies have exclusions for 4 main reasons:
For Catastrophic Risks
A standard insurance policy does not cover catastrophic risks, but sometimes coverage is available through an endorsement, or separate policy. For example, homeowners policies typically exclude coverage for flood damage, but this protection is available through a separate flood policy.
To Encourage Exercising Caution and Care
Many insurance policies exclude wear and tear, since that kind of damage isn’t accidental. You can expect your property to lose value over time, and you can reduce it by practicing appropriate care and maintenance.
Additionally, liability insurance excludes coverage for intentional harm or damage.
To Reduce Duplicate Coverage
Insurance companies want to avoid the confusion of determining which policy should cover which loss. Some exclusions are designed to help clarify those differences.
For example, auto insurance policies typically provide coverage for damage to the vehicle caused by a flood. However, homeowners insurance policies typically exclude coverage for flood damage.
Homeowners insurance excludes coverage for losses caused by or to vehicles, because those losses are covered under auto insurance.
This principle also applies to other risks that policyholders might experience. For example, auto insurance typically excludes two- or three-wheeled vehicles, aircraft, and watercraft. Policyholders in need of protection for those kinds of vehicles can purchase endorsements, motorcycle and ATV insurance, or boat insurance.
To Keep Premiums Reasonable
Excluding perils not faced by the average customer helps insurance companies control premiums. If you require more unique coverages, you can usually eliminate some exclusions by purchasing endorsements at an additional cost.
Familiarize Yourself with Your Policies' Exclusions
Not all insurance policies are the same. Take the time to review your insurance policies and familiarize yourself with their exclusions. That way, you won't be surprised if you experience a loss only to find it's not covered under your policy.