Small business insurance policies help business owners and self-employed professionals reduce risk and provide financial support if they suffer damage or loss. But an insurance policy can’t cover you for everything, which is why insurance providers have exclusions written into a policy.

Exclusions can come in many forms, and some are broad and non-negotiable. For example, your commercial property insurance may exclude coverage for certain perils like earthquakes or losses resulting from intentional criminal actions or fraudulent acts by the insured.

In other words, the exclusions in your policy outline what damages or losses your insurance provider will not cover. Therefore, if you file a claim because of damage or loss for an item or event excluded from your policy, your provider will not pay that claim.

A businessman thinking about insurance

Business Insurance Exclusion Basics

A business insurance exclusion is a provision that removes your coverage for certain risks, hazards, or events and outlines what is not covered by your policy. They are designed to help keep the price of premiums affordable.

Why Do Insurance Policies Contain Exclusions?

Insurance providers have exclusions in a policy because they can’t pay every claim regardless of what it is or how it happened, or that insurance provider could become insolvent. Exclusions are designed to help keep the cost of premiums down. Otherwise, the price of insurance would be prohibitively high.

Some examples of why an insurance provider may exclude something from a policy are:

  • Too much risk: If your commercial property is on a floodplain, an insurance provider may decline to provide you with overland flood protection.
  • The loss or damage is avoidable: An insurance contract is not a maintenance contract. Therefore, it’s your responsibility to upkeep your property or equipment by taking preventative and proactive steps to avoid damage or loss resulting from wear and tear or something that could be fixed in advance.
  • It’s impossible to price the risk: A policy may exclude damage or loss resulting from a hostile act like a war or terrorism since it’s impossible to calculate the potential losses or the timeframe in which such things may occur.
  • The loss or damage is covered elsewhere: Commercial property insurance does not cover your business vehicles because commercial auto insurance will cover them.

Common Business Insurance Exclusions

When reading your business insurance policy, you will find the exclusions in your policy are usually listed beneath your coverage details. However, sometimes, you may find them within your coverage definitions.

For instance, some common exclusions in a policy may include:

  • Catastrophes: While a policy may cover damages because of extreme weather, it may exclude risks such as earthquakes, floods, storm surges, and wars. That said, not all policies and insurance providers are the same. For example, a small business could have flood damage coverage in a commercial property policy.
  • Intentional or criminal actions: Damage done intentionally to property or an item by the insured, like igniting a fire, or criminal activity, such as fraud by a business owner or employee.
  • Preventative maintenance: Commercial property and equipment breakdown insurance are designed to cover the cost of damage or loss to your property resulting from unforeseen events. However, physical damage to your property because of wear and tear or failure to address a maintenance issue like a leaky water pipe is usually excluded.
  • Liquor liability: If you own a restaurant or cafe that sells alcoholic beverages, your general liability policy does not include coverage for claims arising from one of your intoxicated customers. In this instance, you need to add liquor liability coverage to your policy.

Understanding Your Business Insurance Policy Details

Insurance can be confusing to understand. If you need a review of your existing policy or have general questions about the various types of business insurance, let our friendly broker team help.

Call us toll-free or live chat with a member of our support team. Our small business insurance experts can answer your questions and provide you with guidance so you have a clear understanding of what you’re covered for and what exclusions are in your policy.

– Reviewed by Michael McDermott, Director of Underwriting, Zensurance.

Recent Posts

Share This Story:

About the Author: Liam Lahey

Liam is the Content Marketing Manager at Zensurance. A writer and editor for more than 20 years, he has been published in several newspapers and magazines, including Yahoo! Canada Finance, Metroland Media, IT World Canada and others.