by Edward Sneneh, Illinois Insurance Specialist in Chicago
Insurance Navy, 4717 N Pulaski Rd, Chicago, IL 60630

Why do insurance policies have exclusions? Do insurance policies have certain common policy exclusions? All insurance contracts, including auto insurance policies, seem to have common policy exclusions that apply to the contract. An exclusion is a situation which allows the company rightly not to pay claims. Specifically an exclusion is a provision in the contract that terminates coverage for certain conditions, properties, damage nature or locations of loss. For example, in the personal auto insurance policies there is an exclusion if an accident occurs while the vehicle is being used for commercial or business purposes.

There are several areas where coverage exclusions are expected in the policy. These exclusion come from the following situations:

1. Catastrophic Losses and Damages. A catastrophe is an infrequent happening  or scenario  that results in unproportionally  large losses.  Flood and nuclear war are prominent examples of catastrophic losses.  If they happen larger losses may take place, losses that are beyond the capability of many private insurance companies. Catastrophic losses are excluded from almost all insurance contracts issued by private insurers. Normally government sponsored insurance plans will provide coverage for those.

2. Expected Losses. Wear and tear losses such as transmission problems, flat tires, leaking old roof,  inoperative cooler compressors, etc. are examples of wear and tear that are typically excluded from almost all insurance contracts. While loss related or resulted from wear and tear is not covered under insurance policies but some warranties (not insurance) may cover those. A loss that is not accidental (sudden and forceful) is not covered.

3. Speculative Risks. Speculative risks refer the situations when there are two outcomes for an event, profit or loss. Example is investing in the stock markets or real estate. Property value may go up and down for a real estate investor or business. While a real estate investor will suffer loss if value of the real estate goes down this loss is normally not covered by normal  insurance policies. Some insurers may however offer insurance for speculative risk, but this is not the norm.

4. Coverage is Expected Somewhere Else. An auto is expected to be covered under an auto insurance policy, and personal computer is expected to be covered under a home policy. If your laptop is stolen from your auto while parking, no coverage is expected under an auto policy.

In many insurances companies may have specific exclusions included with or without the consent of the client. Insured people are encouraged to read their policies and look for phrases such as 'does not include', 'excluding', 'Unless', 'except',  'only if' or 'subject to' It is very critical that all insured people read and understand the definitions listed in their policies, terms and conditions and the exclusion sections.

The most important part however is the insurance declaration pages which summarize the times and dates of coverage, what is covered and where, the amount of coverage, and other vital details about the insured and the insurance company.
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