Insurance policies are designed to provide coverage for certain risks, but they do not cover every possible loss or circumstance. An insurance exclusion is a policy provision that identifies a risk, event, property, person or circumstance for which coverage does not apply.
Exclusions can be found in many types of personal and commercial insurance policies, including home insurance, renters’ insurance, auto insurance, health insurance and business insurance.
Understanding exclusions is an important part of understanding your insurance coverage. An exclusion may mean that a particular risk is not covered under the policy, is covered only in certain circumstances or requires separate coverage or an endorsement.
How do insurance exclusions work?
An insurance policy generally explains what the insurer agrees to cover, along with the terms, conditions, limits and exclusions that apply. Exclusions help define the boundaries of that coverage.
For example, a property insurance policy may provide coverage for certain types of physical damage while excluding or limiting coverage for other causes of loss. A liability policy may cover certain claims alleging bodily injury or property damage while excluding claims arising from particular activities or circumstances.
Exclusions may appear in different parts of a policy, including coverage forms, definitions, conditions and endorsements. Because policy language varies, it is important to review the entire policy with your insurance advisor.
Why do insurance policies have exclusions?
Insurance is designed to transfer certain risks from the policyholder to an insurer. Exclusions help identify risks that fall outside that agreement.
A policy may exclude a risk for several reasons. For example, a risk may require a different type of insurance, may be difficult to insure under a standard policy or may fall outside the purpose of the coverage being purchased.
Some exclusions may also be addressed through additional insurance, an endorsement or a separate policy.
Common Insurance Exclusions
The exclusions that apply will depend on the type of policy. A home insurance policy will have different exclusions from a commercial general liability policy, for example. However, several broad categories of exclusions often appear across personal and commercial insurance:
- Intentional Acts: Insurance generally is intended to address accidental or unexpected losses rather than deliberate damage caused by an insured, so policies typically exclude certain losses resulting from intentional or dishonest acts.
- Wear, Tear and Maintenance: Property insurance is not intended to serve as a maintenance plan. Policies may exclude or limit losses associated with deterioration, wear and tear, corrosion, infestation or failure to properly maintain the property. For a homeowner, this might involve long-term deterioration of part of the home. For a business, similar exclusions could apply to a commercial building, equipment or other insured property.
- Flooding and Earthquakes: Standard insurance policies may exclude or limit coverage for certain types of water damage, flooding, earthquakes, sinkholes or other earth movement. For personal insurance, homeowners may need separate flood insurance or additional coverage for earthquakes. Businesses may face similar concerns since a standard property policy may not cover certain flood or earth movement losses.
- War and Nuclear Hazards: Many personal and commercial insurance policies contain exclusions related to war and nuclear hazards. The wording and scope of these exclusions will vary by policy.
- Governmental Action and Ordinance or Law: Property policies may contain exclusions or limitations related to governmental action or the enforcement of building codes and ordinances. For example, after a covered property loss, current building codes may require upgrades beyond simply repairing the damaged portion of a structure. Depending on the policy, these additional costs may require ordinance or law coverage.
Personal Insurance Exclusions
A home insurance policy is designed to insure against four types of loss:
- Damage to the dwelling caused by fire, lightning strike or other hazard.
- Loss of personal property in the home due to fire, storm or other damage.
- Liability if someone is injured or their property is damaged in your home.
- Additional costs, such as living expenses if you must move out during repairs.
While most home insurance policies include these four types of coverage, there will also be exclusions for specific hazards or circumstances. The named perils section of a policy lists the hazards that are covered, such as fire, hail and lightning. In some states, insurers exclude windstorms due to the frequency of hurricanes. Some regions require separate flood insurance, and others may exclude earthquakes or sinkholes, necessitating additional coverage.
Common Home Insurance Exclusions
Some of the most common home insurance exclusions include:
- Aggressive Dogs: In some home insurance policies, a dog breed that is considered aggressive will be named as an insurance exclusion.
- Earth Movement: Clay soils heave, sinkholes subside and earthquakes jolt the earth sideways. Earth movement is generally excluded from insurance coverage unless a separate policy is purchased.
- Governmental Action: A governmental body may have the power to condemn or confiscate private property. Many insurance policies exclude such loss from coverage.
- Infestation: Destructive pests, such as termites or rats, can cause as much damage as a fire or storm. In most policies, damage by wood-destroying pests is not covered.
- Intentional Loss: If a homeowner or family member purposely starts a fire or causes other damage, that is considered intentional loss and such damage is an exclusion.
- Mold: Coverage for mold may be excluded or limited under a home insurance policy. In some cases, limited coverage may apply when mold results from a covered loss. Additional coverage may also be available by endorsement, depending on the insurer and policy.
- Neglect: Skipping regular maintenance or failing to correct maintenance issues is considered neglect and is an exclusion.
- Nuclear Hazards: Standard home insurance policies generally exclude losses caused by any form of nuclear energy, whether through a reactor accident or a weapon.
- Business Use: A home insurance policy covers use of the home as a residence. Protection against damage or liability from operating a business in the home requires business insurance.
- Ordinance or Law: If local building codes require a structure to be condemned or demolished, the loss of property in this manner is not covered.
- Power Failure: Most policies cover damage from an on-premise power failure, such as a tree striking your power meter. However, an off-premise failure that knocks out the entire block is not covered.
- War: Although bombing or shelling may destroy an insured property by fire or other standard peril, the circumstance of war is a general coverage exclusion.
- Water: Damage from a burst pipe or an overflowing toilet is covered (unless caused by neglect). Damage from external forces, such as flood, water main break or sewage backup, may be excluded.
Health Insurance Exclusions
At one time, many health insurance policies excluded conditions that were known prior to acquiring a new policy. Under the Affordable Care Act, though, health insurers generally cannot deny coverage or charge more because of a pre-existing condition for applicable health coverage.
- Dental Care: Most employee health insurance policies exclude dental care unless a separate policy is purchased.
- Medical Devices: Many plans include coverage for examinations and treatment but do not cover devices, such as glasses, hearing aids, breathing support or corrective footwear.
- Elective Care: There are many modern therapies, such as laser eye surgery or in vitro fertilization, that can improve quality of life, but do not treat illness and are therefore excluded from most health insurance plans.
- Excluded Drugs: Most health insurance companies publish a drug list or formulary that may have up to five tiers, indicating which drugs are fully covered, which have a higher co-pay, and which are excluded.
- Excluded Providers: Many health insurance policies exclude non-traditional providers, such as chiropractors, herbalists or spiritual healers, as well as any provider who is not licensed by the state to practice medicine.
Auto Insurance Exclusions
Collision insurance covers striking another car or an object but does not cover other types of damage. Conversely, comprehensive insurance covers a tree falling onto your car, but your car running into a tree would be covered under your collision policy. Learn more about the differences between collision and comprehensive auto coverage.
In some states, auto insurance policies may exclude a member of the policyholder’s household whose driving record, age or other status would result in more risk and a higher premium.
Exclusions in Business Insurance
Businesses can face a wide range of risks involving property, employees, customers, vehicles, professional services, technology and other operations. Because no single policy addresses every exposure, commercial insurance programs often combine several types of coverage.
Understanding exclusions can help business owners identify where one policy ends and another type of coverage may be needed.
Commercial Property Insurance Exclusions
Like home insurance, commercial property insurance may exclude certain causes of loss or types of property. Depending on the policy, exclusions or limitations may apply to risks such as flooding, earth movement, wear and tear, certain equipment failures or other causes of loss.
A business may be able to address some of these exposures through separate policies or endorsements.
General Liability Exclusions
Commercial general liability (CGL) insurance is designed to address third-party bodily injury, property damage and other liability claims. However, it does not cover every type of business liability.
For example, a general liability policy may contain exclusions related to professional services, employee injuries, pollution, certain damage to the insured’s own property and other exposures.
Some of these risks may be addressed through other types of insurance, such as workers’ compensation, professional liability, environmental insurance or other specialized coverage.
Cyber and Technology Risks
Businesses increasingly rely on technology and store sensitive information. However, traditional property and liability policies may provide limited or no coverage for certain cyber events.
Businesses may consider cyber insurance to address risks such as data breaches, cyberattacks and certain technology-related losses. The scope of cyber coverage and its exclusions can vary significantly, so make sure to review your policy with your insurance advisor.
Professional Services
Businesses that provide professional advice or services should pay particular attention to professional services exclusions in their liability coverage.
A general liability policy may not cover certain claims arising from errors, omissions or professional advice. Depending on the business, professional liability insurance, also known as errors and omissions (E&O) insurance, may help address these exposures.
See an Insurance Professional
If your unique circumstances suggest that the exclusions in your insurance policies are leaving you vulnerable to too much risk, don’t wait for trouble to find you. Talk with a professional to make sure that you are insured for standard policy exclusions.
