What is an insurance exclusion?
Insurance exclusions appear in a policy in one of two ways. The first is by naming the specific perils that are covered so that any risk not listed in the policy is automatically excluded. This is usually called named-perils coverage, and an HO1 policy is a good example. It names 10 perils that it covers:
- Fire or lightning
- Hail or windstorms
- Riots or civil commotion
- Damage from aircrafts
- Damage from vehicles
- Malicious mischief or vandalism
- Volcanic eruptions
Damage to your house caused by those 10 events is covered. Everything else is excluded, so you can see how limited named-perils coverage is.
The other way insurance exclusions show up is by listing each one in the policy. This is called open-perils or all-risk coverage, and having it your policy covers everything except what is named as an exclusion. An HO3 policy is an example of open-perils coverage because it names the perils it excluded. Some examples of common insurance exclusions on an HO3 are:
- Ordinance or law
- Earth movement
- Water from external sources
- Power failure
- Nuclear hazard
- Intentional loss
- Government action
An HO3 policy covers everything except these nine perils, so it provides broader protection than a named-risk policy like an HO1. You should note, however, that policies can have both types of coverage. For instance, an HO3 policy offers open-perils coverage for your dwelling, but named-perils coverage for your personal property.
Specific insurance exclusions explained
Knowing what’s excluded from your home insurance is important to making sure you’re protected. Otherwise, you could end up paying for damage you thought was covered. This next section explains some of the more surprising insurance exclusions you may run across in your homeowners policy.
Ordinance or law
Many homeowners insurance policies exclude losses related to the construction, repair, or demolition of a home when these are required by ordinance or law. For example, if your home insurance has this exclusion, then your insurer most likely won’t pay for any upgrades required by new building codes.
Insurers typically exclude any loss arising from sudden shifts in the earth, such as landslides, mudslides, sinkholes, and earthquakes. Interestingly, earth movement caused by a fire or explosion is usually covered.
While the damage from a burst pipe in your home is covered, water from flash flooding, tsunamis, tidal water, storm surge, and levy breaks is often excluded. Additionally, sewage blockage and broken sump pumps are often part of this insurance exclusion.
This exclusion is a little tricky. Power failures are generally not covered if the actual failure occurs away from your home. However, if the power failure causes a loss at your residence that’s covered by your policy, then your insurer may pay your claim.
Insurance companies do not want to pay claims because you failed to take care of your property, so most homeowners policies exclude damage caused by neglect. An example might be if you failed to replace a beam suffering from dry rot. If it falls and causes damage, your insurer will most likely deny the claim.
War and nuclear hazard
Losses arising from war or nuclear hazards are not covered. This could be damage from being directly in a war zone or a nuclear power plant having a catastrophe leading to a dangerous home.
This probably goes without saying, but you cannot expect your insurer to pay a claim when you intentionally cause damage to your home. For example, someone who intentionally sets a fire off in the house cannot make a claim for fire damage.
Many homeowners insurance policies exclude losses that are the result of a government agency’s action, such as confiscating, destroying, or seizing your property. Sometimes there is an exception to this insurance exclusion for property destroyed by a government agency that’s trying to prevent a fire from spreading.
Getting coverage for exclusions
Just because your homeowners insurance excludes certain events doesn’t mean you can’t get coverage for them. Often, you can buy endorsements or other policies to address the event in consideration.
For example, most homeowners insurance policies don’t cover water damage from a sewer backup because that’s an external source that invades your home. But you can usually get an endorsement to cover it, or you might up for a flood insurance policy. Similarly, you can get earthquake insurance in addition to your home insurance if you’re worried about earth movement.