Insurance Exclusions

Understanding why there are conditions and limitations, exclusions, and specific warranties will help you in putting together your insurance portfolio. There are some exposures such as war, nuclear risk, that are not insurable, at least not easily insured. Anything can be insured for a price if you so choose.

There are some catastrophic exposures that are typically excluded on all policies but there is insurance in the marketplace that is available to provide coverage for these catastrophic events. Flood, earthquake, wind exposure such as hurricanes, and sinkholes are some typical high-risk losses that are excluded on all policies. All those individual catastrophic events can be covered either individually or as a group of coverages in the marketplace.

Moral or morale hazards are usually not situations whereby the carrier would want to provide coverage. The failure morally in the financial sector has been the most prevalent. We have seen tremendous moral failure with massive accounting fraud, billions of dollars that has been stolen, and Ponzi schemes that have defrauded thousands of people from their life savings. There are insurance policies to cover employee fidelity and directors’ and officers’ exposure to these kind of losses. These dishonesty and fidelity coverages are typically excluded from the average insurance policy. Almost all policies have exclusions the deal with intentional losses that are predictable or expected because of the intentional acts.

Usually intentional acts are not covered on any policy. The most obvious would be that of gambling. If any insured gambles away their money in their checking account that is never covered and is always excluded in insurance policies.

All policies have exclusions and provisions that exclude coverages that should be provided within other policies. Otherwise, you will have one policy that is extremely expensive as you as the client might not be looking for that much coverage. The common example would be that the general liability policy will always exclude anything to do with workers compensation. If you don’t have any employees you would not want to pay for a General Liability policy that also covers employees that would be too expensive.

You need to have a Worker’s Compensation policy in force to address workers injuries, sickness, accident and illnesses. Workers Compensation policies exclude property, liability, etc. as those items should be covered on other policies.

Many times there are specific limits for unique properties because of their difficulty in ascertaining losses and loss values. You can buy more insurance but most policies have a limit to money and securities usually around $1,000. It is usually very hard to prove whether not somebody had $1 million cash on the premises unless you have a specific policy design for those kinds of large amounts.

Some exclusions deal with external events such as union strikes, stock market fluctuations, loss of market share and employee turnover, etc. Those types of events are usually not insurable and are thus excluded. Life insurance policies are unique in their exclusions and limitations. Almost all policies, except life insurance policies exclude coverage if the insured has no insurable interest. Life insurance policies only require that at the time you buy the policy initially that you have an insurable interest. If later on you don’t have an insurable interest the life insurance carrier will still make good on the policy benefits and not exclude coverage.

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