An exclusion is an event (peril, accident, incident, or accusation) that an insurance policy will not cover. A standard insurance policy will typically include some exclusions.
While insurance policies help small businesses mitigate risk, they don’t cover everything. That’s why it’s important to read through your insurance coverage carefully and purchase additional coverage if there are any gaps.
Before buying a policy, learn about common insurance exclusions and why insurers may omit them from a policy. Grab your notepad!
What are insurance exclusions?
Insurance exclusions are policy provisions that waive coverage for certain types of risks or events.
Policy exclusions create a balance between coverage for fortuitous losses (losses you couldn’t have reasonably prepared for) and the need to remain solvent in order to pay those claims.
For example, a homeowners insurance policy doesn’t include flood insurance. Homeowners must purchase a separate policy to get coverage for property damage due to flooding. Next, learn about other exclusions you may encounter.
Common insurance exclusion categories
Policy exclusions vary based on several factors and are ultimately up to the insurance provider’s discretion. Note that some of the exclusions in commercial property, homeowners, personal auto, and general liability insurance policies will be the same, but others will be unique to that specific type of policy.
However, there are a few common types of exclusions that you should be aware of when reviewing your insurance policies. We’ll examine each in detail:
- Catastrophic
- Intentional actions
- Covered elsewhere
- Illegal actions
- Maintenance issues
- Easy to control
Catastrophic
Catastrophic risks may negatively impact a large number of policyholders simultaneously, which can affect the insurer’s ability to pay out claims. For example, many insurance policies exclude “hostile acts” such as war. In fact, catastrophic exclusions are sometimes simply referred to as “war exclusions,” and protect insurers from having to pay for losses caused by low-probability, high-cost widespread events.
In addition to war, this term can also apply to unexpected natural disasters like floods, tornados, earthquakes, or other “acts of God.” Although you generally won’t be able to purchase war coverage, you may be able to obtain coverage for natural disasters by purchasing a separate catastrophic insurance policy.
Intentional actions
The purpose of insurance is to protect an individual or business from misfortune and circ*mstances that are beyond their control. On the other hand, if you intentionally cause the damage, most policies won’t pay for the losses.
For example, if a driver experiences road rage and purposefully drives their car into another vehicle, their auto insurance policy will most likely not cover damages to the insured’s car, even if they had a comprehensive auto policy. Similarly, if a contractor purposefully damages a client’s property because they haven’t been paid, the malicious damage wouldn’t be covered by the provider.
Covered elsewhere
Many risks are excluded from one type of policy because that coverage is included in another type of policy. For example, a general liability policy won’t cover vehicle liability claims, since that is what commercial auto policies do.
Illegal actions
Most insurance policies feature exclusions that void the insurance contract if the insured is attempting to recoup losses resulting from lawless behavior or criminal actions.
One of the first steps an insurance company will take when evaluating a claim is to decide whether the act that caused the loss can be reasonably counted as an “occurrence” per the policy. In most cases, if there is an underlying crime, a claim won’t be counted as an occurrence.
Maintenance issues
While insurance policies can help protect you from a wide variety of risks, not every risk can be insured, especially since many of them occur naturally over time.
For example, most insurance policies won’t cover damage caused by wear-and-tear to a vehicle or a home. Not only are these risks that can be controlled by taking proper precautions and through continued maintenance, but they’re also an unavoidable aspect of owning the asset in question.
Easy to control
There are some risks that insurers exclude because they can be easily mitigated or significantly reduced if the insured takes the proper precautions or actions.
For instance, if your roof were to cave in because of snow buildup over several days, the insurer could claim that there were actions you could have reasonably taken to remove the snow and prevent the damage. Now that you know what to look for — where in the world do you find exclusions? (Hint: They’re in your policy.)
Where to look for exclusions in your policy
You should read your policy documents thoroughly in order to make a note of any exclusions. Exclusions are typically listed after the coverage section of your policy, but sometimes they are a part of each coverage description.
If you’re unsure about what is excluded from your policy, you should get in touch with your insurer in order to double-check the details. In some cases, it may be a good idea to purchase an additional insurance policy in order to fill in the gaps caused by an insurance exclusion. Other times, a “rider” (add-on coverage to your policy) can be a workaround for exclusions.
For example, general liability policies generally exclude product liability coverage for bodily injury or property damage caused by goods you make or sell. However, Thimble does not exclude product liability coverage in our Crafters Insurance policies. If you have any questions about your policy’s exclusions, read your policy carefully and speak with your provider if you have questions.
Straightforward liability coverage
There’s a lot of complex terminology in the insurance industry, but insurance doesn’t have to be complicated. Enter Thimble: We offer simple, flexible insurance for small businesses, with as little confusing jargon as possible.
We’re the first insurance service provider that puts customers in control: small businesses of any size can get a policy by the job, month, or year and modify, pause, or cancel anytime. Download the Thimble mobile app or click “select a quote.” In under 60 seconds, you get the coverage you need, only when you need it.
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