Reviewed by Stefan Tirschler
Updated February 22, 2023
ex·clu·sion | ik-ˈsklü-zhən
Definition: A stipulation within an insurance policy that specifies which loss types or property are not covered in the event of a loss.
Most home insurance policies include an exclusion for damage from nuclear hazards.
In insurance, an exclusion is something that is not covered under an insurance policy.
Exclusions come in many forms. For example:
Depending on the type of insurance policy, you might find a long list of exclusions or just a few. A named perils policy covers all the perils it lists specifically. It excludes all other perils, even if they aren’t listed as such.
On the other hand, a comprehensive policy covers everything except what it lists as excluded. You’ll be sure to find every exclusion listed clearly on such a policy.
When an insurance policy excludes something, it means you have no coverage for that something. If you make a claim for it, the claim will be denied.
Insurance policies can’t cover everything. The system would fall apart pretty fast if insurance companies had to pay for every claim, no matter what. At the very least, premiums would be far higher than anyone could possibly afford.
Instead, insurance companies carefully design their coverage to balance the scope of their coverage with the risk, and the cost they will have to charge for it.
They do this through the careful use of exclusions. There are many examples of why an insurer might choose to exclude something from a policy. For example:
While there are many reasons for exclusions, the ultimate goal is to keep premiums low for their customers. Offering coverage for too many high-risk or easily avoidable losses would be irresponsible. Exclusions are one of the main tools insurers have to ensure they’re using their customers’ premiums responsibly.
Looking for another insurance definition? Look it up in The Insurance Glossary, home to dozens of easy-to-follow definitions for the most common insurance terms. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.
About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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