Insurance Exclusions and Limitations

Insurance exclusions and limitations within insurance policy contracts have been a bone of contention since their inception over 300 years ago. Exclusions, while very confusing to the insured, does have their place within the policy contract and does serve a very important purpose. If it were no exclusions in the contract the policy would be intended to cover every exposure and thus the premium would be astronomical and nobody would be able to afford a typical insurance policy. So by having the appropriate exclusions on the differing policies insurance premiums are more reasonable and affordable then if there were no exclusions on each and every policy.

Another reason exclusions are in the policy is that in some instances certain acts are against the law to provide coverage for. Otherwise crimes would have to be paid for by an insurance carrier and that is against public policy. Most of the time catastrophic events such as nuclear disaster or war are excluded as the costs of indemnity from those types of events could be incalculable. Some other reasons as to why there are exclusions on insurance policies are that not everyone wants to cover broad and enhanced situations. Sometimes basic coverages will suffice.

Since there is a multiplicity of insurance policies coverages from some policies are more suited for certain types of risk. Excluding coverage for certain kinds of risks can help you in choosing which specific policy is better suited for your company and your business situation. Obviously the less exclusion and limitations, the broader the coverage but that comes with a price tag.

Typically intentional acts of the insured are not covered because accountability and responsibility is part of our societal values. The growth of claims and lawsuits from such things as sick buildings has caused many environmental type exclusions to have been developed and are included in modern-day insurance policies.

Most general liability policies have exclusions that have been instituted with regards to employment practices and board of directors’ officers’ exposures to loss. While most of the basic policies exclude these types of the events, there are now specific policies to cover these type events that were typically excluded.

Most of the time exclusions are used by insurance carriers to further clarify what they intend to cover and not so much to take away coverage from the insured. Fraudulent claims are rampant across all lines of business and we as consumers pay for these bogus claims. Exclusions are one tool to clamp down on claims that are not intended to be insured by the carrier.

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