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What is an exclusion in insurance?

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Insurance exclusions are provisions in an insurance policy specifying risks that are not covered. Whether the policy is written for home, renters, health, automobile or business insurance, exclusions allow the insurance company to define when your coverage applies – and when it does not.

Homeowners insurance policies typically cover damage to the dwelling, loss of personal property, liability and other costs, such as temporary living expenses while the home is repaired. Each of these sections in an insurance contract may specify certain hazards or situations when coverage does not apply. These are insurance exclusions.

In addition to the sections specifying the named perils and coverage provided, an insurance policy may also have exclusions in the clauses that cover definitions, conditions and endorsements.

Typical Homeowners Coverage

A homeowners insurance policy insures against four types of loss:

  1. Damage to the dwelling caused by fire, lightning strike or other hazard.
  2. Loss of personal property in the home due to fire, storm or other damage.
  3. Liability if someone is injured or their property is damaged in your home.
  4. Additional costs, such as living expenses if you must move out during repairs.

While most homeowners policies include these four types of insurance, there will also be exclusions for specific hazards or circumstances.

Coverage Limited to Named Perils

The named perils section of a policy lists the hazards that are covered, such as fire, hail and lightning. In some states, insurers exclude windstorm due to the frequency of hurricanes. Some regions require separate flood insurance, and others may exclude earthquakes or sinkholes, requiring additional coverage.

Some Common Insurance Exclusions

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 – Mold growth requires prolonged moisture, such as a roof leak or faulty plumbing. Because these conditions could have been corrected, the homeowner is considered responsible for the mold damage. Mold coverage is excluded from home insurance policies, but some companies offer coverage that can be purchased.

Neglect – Skipping regular maintenance or failing to correct maintenance issues is considered neglect and is an exclusion.

Nuclear Hazards – A loss caused by any form of nuclear energy, whether through a reactor accident or a weapon, is not an insurable with any standard insurance policy.

Business Use – A home insurance policy covers use of the home as a residence. Protection against damage or liability from operating 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. With passage of the Affordable Care Act in 2014, Congress prohibited the insurance industry from excluding pre-existing conditions.

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 greatly improve quality of life, but do not treat illness and are therefore excluded.

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.

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.

What to Do About Exclusions

First, read your insurance policy carefully. You may not know about coverages that are excluded unless you look. You can find exclusions in the sections of your policy devoted to named perils, endorsements, definitions and conditions.

Once you understand which hazards or situations are excluded from coverage, ask yourself what level of risk you are willing to tolerate with regard to those specific risks.

Did you move to a state where hurricanes are common? Do you run a business out of your home? Do you live in a flood zone? Many risks that could negatively impact your coverage as exclusions are not always obvious.

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.

Not sure where to start? Talk to someone who wants to listen.

A great plan starts with a conversation. Let’s talk about what you need.

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