What are 'exclusions' in an insurance policy?

Exclusions in an insurance policy refer to specific circumstances or situations that are explicitly not covered by the policy. These exclusions are vital for defining the boundaries of coverage and help both the insurer and the insured understand the limitations of the policy. By listing exclusions, the insurer clarifies what events or losses the policyholder will not be compensated for, which helps avoid misunderstandings in the event of a claim.

For example, a homeowner's insurance policy might exclude damages caused by natural disasters like earthquakes or floods, meaning if such an event occurs, the insured would not receive coverage for related damages. Understanding exclusions is crucial for policyholders as it allows them to assess their risk and coverage needs adequately.