Understanding Policy Exclusions: What's NOT Covered

Insurance policies don't cover everything. Understanding exclusions - what your policy explicitly doesn't cover - is as important as knowing what is covered. This guide reveals common exclusions that surprise policyholders and shows you how to fill coverage gaps.

Why Exclusions Exist

Insurance companies exclude certain risks because they are:

• Catastrophic: Too large for standard policies (floods, earthquakes)
• Preventable: Result from neglect or intentional acts
• Predictable: Certain to occur (normal wear and tear)
• Specialized: Require separate, tailored coverage (business liability)
• Uninsurable: Too risky or uncertain to quantify

Common Homeowners Insurance Exclusions

These items are typically NOT covered by standard homeowners policies:

• Flood damage: Rising water from outside (requires NFIP or private flood insurance)
• Earthquake damage: Ground movement (requires separate earthquake policy)
• Sewer/drain backup: Water backing up through drains (requires endorsement)
• Mold damage: Often excluded or severely limited
• Gradual damage: Slow leaks, settling, wear over time
• Pest damage: Termites, rodents, insects
• Neglect/maintenance: Damage from failure to maintain property
• Intentional damage: Any damage you cause deliberately
• War/nuclear hazard: Military action, nuclear accidents
• Government action: Seizure, destruction by authorities
• Vacant property: Homes empty 60+ days (often excluded)
• Business activities: Home-based business losses (need business policy)

Common Auto Insurance Exclusions

• Intentional damage: Deliberately damaging your vehicle
• Racing/competitions: Any organized speed events
• Commercial use: Using personal car for deliveries without proper coverage
• Unlisted drivers: Regular drivers not on your policy
• Mechanical breakdown: Engine failure, transmission problems
• Normal wear and tear: Tires, brakes, routine maintenance
• Personal belongings: Items inside car (covered by home/renters policy)
• Diminished value: Loss of value after repair (varies by state)
• Rental car abroad: Coverage may not apply outside US/Canada

Renters Insurance Exclusions

• Roommate's belongings: Only named insureds covered
• Flood and earthquake: Same as homeowners
• High-value items: Jewelry, art above sub-limits (need scheduling)
• Bed bugs: Typically excluded as pest damage
• Pet damage: Your pet damaging your belongings
• Motor vehicles: Cars, motorcycles, boats (need separate policy)
• Business property: Work equipment may need separate coverage

Sub-Limits: Coverage That Exists But Is Capped

Even for covered items, policies often have sub-limits - maximum payouts for specific categories:

• Jewelry: Typically $1,000-$2,500 total (per occurrence)
• Cash: Usually $200-$500
• Electronics: $2,500-$5,000
• Firearms: $2,000-$5,000
• Art/collectibles: $2,500-$5,000
• Business equipment: $2,500 (need business policy for more)

If you own valuable items exceeding sub-limits, schedule them separately for full coverage.

How to Fill Coverage Gaps

Options to cover common exclusions:

• Flood insurance: NFIP or private flood policies ($500-$2,000/year average)
• Earthquake insurance: Separate policy (1-3% of dwelling coverage/year)
• Water backup endorsement: Adds sewer/drain coverage ($50-$100/year)
• Scheduled personal property: Full coverage for valuables ($20-$100/item/year)
• Umbrella policy: Extra liability coverage ($200-$400/year for $1M)
• Home warranty: Covers appliances/systems (different from insurance)
• Business endorsement: Adds coverage for home-based business

Understanding Exclusion Language

Policy language matters. Know these terms:

• 'We do not cover': Absolute exclusion, no coverage
• 'We do not cover unless': Exclusion with exceptions - read carefully
• 'Subject to': Coverage exists but has conditions
• 'Limited to': Coverage capped at specific amount
• 'Arising from': Explains what triggers the exclusion

Concurrent Causation: When Covered Meets Excluded

What happens when damage has multiple causes, some covered and some excluded?

• Example: Wind (covered) causes flood (excluded) damage
• Some policies: Cover the covered portion only
• Anti-concurrent causation clause: Denies entire claim if any excluded cause involved
• Read your policy carefully for concurrent causation language

State-Specific Exclusion Rules

Some states limit or prohibit certain exclusions:

• California: Limits earthquake exclusions in fire policies
• Florida: Regulates hurricane deductible timing
• Texas: Prohibits anti-concurrent causation for weather events
• Louisiana: Restricts flood exclusion application for named storms
• New York: Limits vacancy exclusion duration

Questions to Ask About Exclusions

When reviewing your policy, ask your agent:

• What are the major exclusions in my policy?
• Are there endorsements to cover these exclusions?
• What are my sub-limits for valuables?
• How does concurrent causation work in my policy?
• Am I in a flood zone or earthquake risk area?
• What happens if my home is vacant for extended periods?
• Is my home business covered?

Common Exclusion Surprises

• Swimming pool liability: May need separate coverage or umbrella
• Dog breed exclusions: Certain breeds excluded from liability
• Trampoline: Often requires special coverage or excluded
• Wood-burning stove: May be excluded without proper installation certification
• Airbnb/short-term rental: Personal policy doesn't cover commercial activity
• Drone damage: May require separate coverage

Key Takeaways

• Every insurance policy has exclusions - know yours
• Flood and earthquake require separate policies
• Read sub-limits and schedule valuable items
• Endorsements can fill many coverage gaps
• Watch for anti-concurrent causation clauses
• State laws may affect exclusion enforcement
• Review exclusions annually as your situation changes