Why Do Insurance Policies Include Exclusions?

Exclusions are a common bone of contention with insurance buyers. Reading some policies makes it seem like nothing is covered.

Actually, I like exclusions. They tell me what I need to worry about.

There are three reasons why something is excluded by an insurance policy:

1) The issue is insured by a separate insurance policy. Auto accidents are excluded by your home insurance policy because they are insured by your home insurance.

2) The exposure can be covered by this policy but the insurer wants to get a separate premium for the issue. Property insurance policies exclude damage by the failure of a sewer or drain. You can remove that exclusion if you are willing to pay an additional premium.

3) Exposures are not insurable due to matters of public policy, insurer reluctance, or reinsurance restrictions. Flood is excluded by most property insurance policies. Some insurers will add the coverage back for an additional premium. Most are unwilling to provide flood coverage to properties in a flood zone due to the heightened risk of loss inherent to the property. That’s why most flood insurance is offered through a US government program – only the government is willing to insure an exposure of the nature of flood.

Class dismissed.