Categories and Rationale for Home Insurance Exclusions

 categories and rationale for home insurance exclusions  categories and rationale for home insurance exclusions

Many people understand the value of home insurance. Home insurance can come to your rescue if your home suffers costly damage, for example, after a storm. However, home insurance cannot and doesn't cover every imaginable risk. Understand the exclusions on your policy so that you can buy separate coverage for them, if possible.

Below are some home insurance exclusions and their rationale.

Catastrophic Losses

Catastrophic risks have a few common features that make them difficult to insure. For example, catastrophic risks:

• Typically affect a large number of people
• Typically affect the same location
• Typically cause expensive damage

Consider earthquake damage, which standard home insurance excludes.

Earthquake damage can affect a large number of homes in the same neighborhood. Most of those affected will suffer damages worth thousands of dollars. An insurance company can easily go bankrupt if it tries to settle the related claims. Even if an insurance company could cover the damage, the premiums would be too high for many people.

Unusually High Risks

Some losses carry unusually high risks even though they are not catastrophic. Home insurance companies exclude such losses because including them would raise insurance premiums too high. Examples of such risks include:

• Full coverage for expensive items, such as jewelry
• Coverage for dangerous pets

In some cases, the insurance company will shoulder the risk at an additional price. Thus, home insurance policies come with endorsements or riders that augment your primary coverage. The additional coverage is optional.

Risks With Alternative Coverage

Insurance policies don't duplicate coverage. Coverage duplication has two major complications. First, duplicate coverage raises the possibility of double compensation in case of a loss. Secondly, duplicate coverage complicates the claim process since you must determine who must pay for which damages.

Alternative coverage is the reason home insurance doesn't cover car damage, even if the damage occurs at home. For example, don't file a home insurance claim if pests damage your car's wiring while the car is in your garage. Rather, you should look to your auto insurance policy for compensation.

Intentional Damage

Insurance typically covers accidental damage, loss, or injury. Most policies exclude intentional acts. For example, don't expect home insurance compensation if:

• You intentionally set fire to your home
• You break your television in a fit of rage after your favorite team loses a game
• You intentionally push someone down the stairs during a fight

The onus is on the insurance carrier to prove that damage is intentional. That is why insurance companies investigate insurance claims.

Inevitable Loss

Insurance companies also exclude losses that are bound to happen. All homes eventually suffer some inevitable loss. For example:

• An asphalt shingle roof will fail after some years
• Trees eventually die, dry, and fall
• Electronic appliances have definite lifespans

Most losses under these categories stem from elements of wear and tear. Examples include corrosion, rot, and friction. Regular maintenance usually mitigates the effects of wear and tear, but most things eventually fail. The certainty means home insurance excludes maintenance-related issues.

Damage From Illegal Acts

Lastly, home insurance companies don't want to encourage illegal acts. Thus, most policies exclude illegal acts. For example, don't expect to get a claim settlement after shooting someone on your property with a gun. Again, the onus is on the insurance company to prove the alleged illegal acts. Insurance companies typically use criminal charges or convictions to rationalize their denials.

A good understanding of how the home insurance industry works will help you get relevant and adequate coverage. The Illinois Insurance Center has a wealth of knowledge and experience in the insurance industry. We have been active in the Chicago, IL, insurance industry for over 40 years. Contact us for a quote on all your insurance needs, including endorsements.