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Understanding Your Policy Exclusions

You’ve no doubt been overwhelmed by the amount of fine print that your insurance policy has.
The main reason for the fine print is to lay out in detail what the insurance company will cover in case of a claim and what it won’t. It’s important that you go through this with your insurance agent and that you especially understand the section called “Exclusions.”

Exclusions are provisions in a policy describing losses that the policy will not cover. For example, a homeowner’s policy does not cover losses caused by the use of cars, and a business auto policy does not cover injuries caused by a bulldozer on a construction site. While it may appear that the insurer includes these provisions to get out of paying claims, the reasons are more complex and less insidious than that. There are very sensible reasons why no insurance policy covers everything. First, not every person or business has the same exposures to loss. For example, you likely don’t own a tractor as a homeowner and the owner of a tractor, in turn a company with 15 employees may work out of a building it occupies but does not own. Because there are so many contingencies, insurers try to create insurance policies that cover the average scenario for each policy. And they learn over time what they should cover and what they should not.

Getting specialty coverage
Standard insurance policies contain coverage that apply to large groups of households and businesses, but they do not cover every possibility. Policyholders with additional needs usually can purchase additional coverage in the form or a rider or endorsement. For example, homeowner’s policies do not cover damage caused by water backing up from an overflowing sump or drain, but households that have basements with sumps or drains have the option of buying this coverage. If you don’t have a basement or a sump pump, you obviously don’t’ need this coverage and it won’t be forced on you in a typical homeowner’s policy.
Every coverage comes with an associated cost and the insurance company must factor in the costs of potential claims, expenses and profit for that coverage.

The uninsurable
The more coverage a policy provides, the higher the premium. Without exclusions, people and businesses would be forced to pay for coverages they do not need. Exclusions help keep the premium affordable.
Also, some losses are just not insurable. That’s because insurers cannot predict when certain types of losses will happen and how much they will cost. One typical exclusion is for acts of war or terrorism. Armed conflict with another country or full-scaled terrorist attack could cause huge losses beyond the abilities of insurance companies to pay. Because every household or business’s circumstances are different, standard policies might not provide all the coverage necessary. For example if you live in a flood-plain, you should also purchase flood insurance along with your homeowner’s coverage. And if you have specific liabilities or assets that may not be covered, you would likely need to talk to us about a policy endorsement.

If you think you may have specific insurance needs like this, don’t hesitate to give us a call.

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