One Size Does NOT Fit All
If you are like most people, when it comes to insurance coverage you think “I have insurance so I am covered for everything, right?” Unfortunately, the idea that you are covered for everything is not that simple. All policies have exclusions, limitations and conditions. Exclusions are designed to eliminate specific hazards that insurance companies cannot or do not want to provide.
These exclusions and limitations are designed to prevent various incidents from being covered that could ruin an insurance company, such as a nuclear disaster. Other limitations help curb fraud. For instance, there is a set limit on cash reimbursement so that you cannot claim you had $100,000 in cash stolen from your property, when, in fact, you had $1,000.
Another reason for exclusions and limitations include eliminating coverage that is not needed by the policyholder. For example, policies exclude coverage for earthquakes as most people are at a low risk for incurring damage from an earthquake. With that said, this coverage can be added to the policy for an extra premium for those who feel they are at a higher risk of incurring damage from an earthquake.
Insurance companies also eliminate coverage that requires special treatment. Flooding is a good example that illustrates this point. Flood insurance can be purchased through the National Flood Insurance Program; therefore a standard insurance company does not offer the coverage.
Exclusions and limitations on insurance policies also help to keep insurance premiums at an affordable level. By not providing coverage for certain events, the companies are spared from having to pay out on certain types of claims and therefore do not have to charge more premium to pay for these losses.
Reducing the likelihood of duplicate coverage is another reason for exclusions and limitations. Motor vehicles are excluded on a property policy as they would be covered on a separate auto insurance policy. If an insurance company covered motor vehicles on the property policy then you would be paying twice for the same coverage, once through the auto policy and once through the property policy.
It is important to understand what you are buying when you purchase a policy and to discuss any specific coverage questions with your agent. Your agent will be able to make recommendations as to how to best protect your property and possessions to ensure your personal and financial assets.