4-minute read
Imagine this: A business owner carefully crafts the perfect insurance policy, thinking they’ve got a fortress of coverage. Then disaster strikes — a fire, a lawsuit, a flood of biblical proportions — and suddenly, they discover a tiny clause lurking in their policy like a plot twist in a bad thriller: exclusions.
Insurance exclusions are the “yes, but” of coverage. They are the fine print that turns “you’re covered” into “you thought you were covered.” Understanding these exclusions can mean the difference between a minor setback and a financial catastrophe. So let’s break it down:
What Are Insurance Exclusions, Really?
At their core, exclusions are simply things your policy won’t cover — specific risks that insurers have decided are too costly, too risky, or too easily preventable to insure. They aren’t hidden, but they are often overlooked, usually because they’re buried in dense legalese that only a seasoned attorney (or an insomniac) would voluntarily read.
The Greatest Hits of Common Insurance Exclusions
Not all exclusions are created equal. Some make perfect sense, while others feel like they were designed by a particularly grumpy actuary. Here are some of the most common exclusions across different types of insurance policies:
1. Acts of War (a.k.a. "You're on Your Own If a Tank Rolls In")
If your business gets damaged due to war, invasion, or rebellion, don’t expect your insurer to swoop in with a check. War exclusions exist across multiple policy types, from commercial property insurance to life insurance. The logic? If war breaks out, the losses are too vast to insure.
2. Intentional Acts (a.k.a. “Nice Try”)
If a business owner sets fire to their own restaurant in hopes of cashing in on the insurance money, that’s not a claim — it’s a felony. Insurance is designed for accidents and unforeseen events, not for creative revenue strategies.
3. Floods and Earthquakes (a.k.a. "Not Our Problem")
One of the most notorious exclusions in home and business insurance policies is flood damage. Many people assume their standard policy covers it — until they’re knee-deep in water flipping through their policy with increasing horror. Earthquake damage? Same deal. You usually need separate, specific policies for these.
4. Mold, Rot, and Neglect (a.k.a. "You Should Have Fixed That")
Did you let a leaky pipe fester until your office smelled like an abandoned basement? Bad news: Your insurer considers that a maintenance issue, not an insured loss. Insurance covers sudden and accidental damage, not the slow march of entropy.
5. Cyber Attacks (a.k.a. "The Hackers Are Not Our Problem")
Despite cybercrime being a multibillion-dollar industry (for the criminals, not for you), many standard business insurance policies don’t cover cyberattacks or data breaches. If your systems get hacked and customer data is stolen, you’ll need a separate cyber insurance policy to avoid paying out of pocket for the damage.
6. Pandemics (a.k.a. “We Did Not See That Coming”)
Remember when businesses worldwide tried to file claims for pandemic-related losses? Insurers, for the most part, said “nope.” Most business interruption policies explicitly exclude pandemics or viral outbreaks. Why? Because if they didn’t, the industry would have collapsed overnight.
The Sneaky, the Strange, and the Just Plain Bizarre
Beyond the usual suspects, some insurance exclusions seem designed purely to frustrate policyholders. Here are a few head-scratchers:
- Personal vehicle, commercial use – If you’re using your personal car for business deliveries and get into an accident, your personal auto insurance may deny the claim because “business use” isn’t covered.
- “Acts of God” (except when they’re not) – Some policies exclude natural disasters like earthquakes but still cover windstorms. The divine seems to have an inconsistent insurance record.
- Lost data, but not lost papers – Some business policies will cover physical documents lost in a fire but won’t cover digital data loss. Because apparently, burning paper is more tragic than losing your entire database.
How to Make Sure You’re Actually Covered
Exclusions aren’t inherently bad. They exist so insurers can price policies realistically and avoid insuring against apocalyptic-scale risks. But they do mean you need to read the fine print and ask questions. Here’s how to protect yourself:
- Ask your insurance advisor to walk you through your policy’s exclusions. (If they dodge the question, that’s a red flag.)
- Consider extra coverage for things like cyber threats, floods, or business interruption.
- Think about risk management. If you know a certain exclusion applies, plan accordingly — backup data, maintain your property, and have an emergency fund.
Exclusions Aren’t the Enemy — Surprises Are
Nobody likes reading an insurance policy, but everyone loves not being blindsided when they need to file a claim. The best way to avoid nasty surprises? Know what’s excluded, ask about solutions, and work with an advisor who will tell you before disaster strikes.
Because when the unexpected happens, the last thing you want to hear is, “Oh yeah, that’s not covered.”
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.