If you’ve ever purchased insurance, you’ve likely heard your insurance agent throw around the word “exclusion” when talking about your policy specifics.
And so you may wondering what on earth they’re actually talking about. Read up, because it’s not just another tiny detail.
What, Why, Who?
Insurance exclusions serve to protect an insurer from risk they are not interested in taking as well as to allow a person or organization to reduce their insurance costs by limiting their requested coverage.
There are exclusions available, and sometimes necessary, for all types of insurance policies from homeowner’s to auto insurance and commercial insurance, the latter being outside the scope of this article. Further, exclusions can refer to multiple aspects of a policy, including people, causes of loss and even animals.
In addition, you may want to exclude someone or something, or your insurer may force you to exclude someone or something from your policy in order to grant you insurance. Remember that an insurance policy is a contract. If you think of it that way, it will make sense that both parties get to detail what they are comfortable with before entering into the agreement.
First let’s take a look at personal auto insurance policy exclusions.
Auto Insurance Exclusions
Individuals are the most common type of exclusion in a personal auto insurance policy. Again, you may chose to exclude someone or the insurer may demand that you do so in order to issue a policy to you.
Typically for a personal auto insurance policy, you must list all persons living in your home 15 years of age and older. Those who you or the insurers don’t want to cover must be excluded. Ultimately, the insurance company would want an exclusion in place to deny insurance claims in the event of an accident caused by someone who is clearly a risky driver.
Here are a few examples:
1. Drivers, typically family members, with a history of accidents or tickets. Certain types of insurance companies are not comfortable with this level of risk. For example, mom may be the safest driver in the world, and as a result, have great insurance coverage with a preferred carrier. However, dad, or one of the kids may have a lead foot or a “talking on the phone while driving” problem.
As a result, your insurance company may write a policy for mom, but exclude the teenager or dad because they aren’t comfortable insuring risky drivers. Mom and or dad may decide to exclude the kid just to keep their premium down, which would force the teen to seek insurance coverage elsewhere.
2. Persons living in your home, who do not have a driver’s license or have a suspended license must be excluded from an auto insurance policy when it is issued, or sometimes, mid-term on a policy if either of these events occur while the policy is in force.
3. Young or inexperienced drivers of any age are typically excluded from a commercial auto policy rather than from a personal auto policy.
A less common form of exclusion on a personal auto policy may be when a certain cause of loss is excluded. This is pretty cut and dry. If you’ve ever bothered to read your entire policy, you probably noticed payments for losses resulting from drunken driving, racing, or using a vehicle in the commission of a crime are excluded (what isn’t covered under an auto insurance policy).
Homeowners Insurance Exclusions
Homeowners insurance has its own set of exclusions for people, animals and causes of loss. Yes, I said animals. The most common and controversial animal exclusion is an “aggressive” dog, like a certain breed known for its questionable behavior. There are multiple insurers in numerous states that require certain breeds of dogs to be excluded from homeowners insurance coverage, as they are most prone to biting people and initiating claims for liability.
Homeowners insurance more typically has exclusion for causes of loss, meaning they will not pay for damage resulting from certain events. Earthquake and flood losses are the two most common insurance exclusions (how flood is defined by insurance company). The exclusions and need for additional coverage will differ vastly based on the location of your home geographically.
It’s worth noting that for addition premium you can insure just about any cause of loss. Your best bet is to speak with your insurer or independent agent to verify which causes of loss you are subject to based on your home location and be certain you are covered.
You may be surprised to find you’re not covered for losses such as wind damage and foundation damage, which are two of the most common reasons for insurance claims in the United States (what is covered under homeowners insurance).
As always, I recommend you purchase as much coverage for as many causes of loss as possible, even if you have to shuffle your budget to do so.