There may not be a worse feeling than when you find out a recent business-wrecking disaster isn’t covered under your insurance. However, with some due diligence, you can avoid facing that nasty surprise.
“Insurance policies give you coverage, but they take it away through exclusions,” says Rick Theders, CEO of Clark-Theders Insurance Agency. “Then, to further confuse the issue, different insurance companies will offer enhanced coverages that give you some coverage back for those excluded items.”
Smart Business spoke with Theders about how to untangle the web of exclusions to find out what is and isn’t covered under your policy.
What is covered under property insurance, and what is typically excluded?
Typically, the insurance company will pay for direct loss to property as defined by a covered loss. It provides a definition of ‘covered losses’ and takes care of those items unless coverage is specifically excluded. That is where you get into the standard exclusions that apply to property and liability — or both.
One exclusion is ordinance of law, when zoning changes or building code changes. For instance, if an older building built to standards in 1920 would have to be rebuilt to 2010 standards, the additional building expenses resulting from code changes and restructuring would be excluded from your property insurance policy. But there are opportunities to purchase additional coverage that will respond to that. Other examples of commonly excluded provisions are earthquake, flood, mudslide, sewer back-up, fungus and mold.
Exclusions under an insurance policy are typically intended to say that this insurance provision is better insured elsewhere by a different coverage part. As flooding is excluded from your property policy, and you are in a flood-prone area, you should buy flood insurance. If you live on top of a hill and aren’t concerned with a flood, you may choose not to buy it.
How do insurance policies handle terrorism?
Many policies state they cover everything except earth movement, government action and war, which is not covered under any property insurance policy. War is defined as one nation declaring military action against another. That is why 9/11 was not considered a war; it was an act of terrorism. Terrorism is not defined as a war, so it is included in coverage.
You can opt out of the federal government’s terrorism insurance. I think it’s an unwise thing to do, but you could choose not to have the federal terrorism reinsurance under your policy. If you reject that and a terrorism event impacts your property or hurts someone, it would be pennywise and pound foolish. You’re spending a few dollars for the contingency that something could happen, but if something did happen, it could be devastating to your property and/or liability.
