With insurance, exclusions allow insurance companies to clearly define what’s covered and what’s not covered within your policy, whether home or renters’ insurance.
Exclusions help to keep premiums low by nullifying the chance of large payments for selected insured individuals who are at risk of detrimental events.
Insurance exclusions have several purposes, but most apply to the risk mentioned in the categories detailed below.
Common Insurance Exclusions Categories
The exclusions detailed within a policy may vary based on different factors but are generally decided by the provider’s discretion.
Typically, the exclusions listed in homeowner’s policies, commercial property, personal auto, and general liability insurance policies tend to be the same. However, in different policy types, the exclusions listed will be unique and chosen specifically to suit their policy.
Insurance exclusions categories can usually be applied across most forms of insurance, and the most common exclusions are detailed below:
Some risks are uninsurable because they are strenuous and can have a negative impact on several policyholders at once.
Catastrophic events can also be referred to as war exclusions, solely because it protects insurers from having to reimburse losses that have been caused by low-probability, but high-cost events.
A specialized cover can insure a few catastrophic events such as tornados, earthquakes, and floods. Usually, anything that happens due to natural causes that cannot be stopped or prevented will be covered.
Example: If a war is to break out, and an explosive like a bomb cause damage to your business property or house, your insurance will not cover the loss. Most property policies will exclude damage that is caused by military or war action.
Risks that are caused by wear and tear are excluded from cover. Simply put, this is because these damages occur naturally and ultimately can be prevented by the policyholder through effective maintenance and taking thorough precautions.
Extra Info: Other risks such as rust, insect infestations, and corrosion will not be covered as they can be managed through good maintenance.
Covered by a Different Policy
Several risks are excluded under one policy because they are found to be covered by another policy. For instance, a general liability policy will not cover any vehicle liability claims because a commercial auto policy covers them.
An insurance company’s first step when considering a claim is to decide whether the issue causing or contributing to the loss can be counted as an occurrence in line with the policy. Under most circumstances, if there is an underlying crime, the claim will not be counted as an occurrence.
Most insurance policies will exclude violations of law, intentionally caused injuries, and crimes as insuring such events would be against public policy. Liability policies will not cover claims resulting from the insured’s harmful or intentional acts like undergoing fraudulent activities.
Insurance companies are established to protect a business or an individual from unforeseeable circumstances and misfortunes that are beyond the policyholder’s control. However, if the policyholder is found to have intentionally caused damage, their claim will be dismissed, and no losses will be paid.
Exceptions and Buybacks
On some occasions, the exclusions detailed in a policy contain exceptions that offer a limited amount of coverage.
Furthermore, some exclusions can be withdrawn if the insured person or persons are willing to pay an additional premium. For instance, if the general liability policy excludes claims regarding injuries that have occurred by one employee against another.
Did You Know: Several businesses will purchase an endorsement coverage to their business auto policy (BAP) for injury claims made between fellow employees.
It’s important to remember policy forms are not set in stone and are subject to changes and updates over the years.
The Insurance Services Office (ISO) updates their policy forms every few years, which insurance companies often follow and adjust their forms according to ISO guidelines.
While many states have laws demanding insurers to alert policyholders to any changes to exclusions, the insured must regularly check their policies. Hence, they are aware of new exclusions that may be added and existing ones that may be modified.
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