Do You Know What Is Excluded from Your Insurance Policy?

By Jason Jones

Exclusions outline what your insurance policy does not cover. Carriers often exclude costly risks like earthquakes or those deemed the owner’s responsibility, such as wear-and-tear or mold. Insurance covers sudden, accidental damage, not gradual or preventable issues.

Knowing which losses are typically excluded helps clarify retained risks and prevent coverage assumptions. Some exclusions can be bought back by endorsement or separate policy.

Standard homeowners policies often exclude business-related losses, including those resulting from rental activities. Investors must have a policy designed specifically for investment properties to ensure proper protection.

 Wear-and-Tear

Normal wear and tear is expected from regular use. As an investor, you should be prepared to pay for carpet cleaning or a fresh coat of paint between renters. Wear-and-tear and deterioration are industry-wide exclusions. These small “repairs” can be covered by the security deposit or accepted as the cost of doing business.

Intentional Tenant Damage

Many investors assume that any damage done by a tenant will be covered by their property policy. Intentional tenant damage is usually a sudden, one-time event and may include damage such as broken doors, missing appliances, or spray-painted walls. Damage done by tenants is typically excluded and not considered vandalism or theft to most carriers as you have a lease entrusting the tenant with the care of your property. That contract should stipulate penalties for misuse of the property, whether that be withholding the security deposit or filing a civil lawsuit.

Mold & Fungus

Standing water from floods, backups, etc. can cause mold within 24-48 hours. Coverage for mold, mildew, and fungus is typically completely excluded or very limited. As insurers differ, policy language may mention “mold,” “organic pathogens,” “mycotoxins,” or “penicillium.” Policies may also exclude wet/dry rot and bacteria. Some courts of law treat mold as a pollutant. As such, mold may not be covered if the policy has an absolute pollution exclusion. Mold can damage building materials and affect tenant health.

Sewer & Drain Backup 

Tree-root blockages or clogs may cause sewage to back up through drains in the home. This water backup or overflow from a sewer, drain, or sump is typically excluded from standard property policies. For these losses to be covered, you’ll need to purchase a Sewer & Drain Backup endorsement.

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Natural Disasters: Earthquake, Sinkholes & Flood

Standard property policies typically exclude damage from earthquakes, sinkholes, and floods due to their catastrophic and unpredictable nature. However, coverage is often available for all three through an endorsement or separate policy. Flood damage must come from an external source, such as overflowing rivers or heavy rain, not from internal plumbing or sewer systems. Most also exclude surface water, tides, waves, and overflow from any body of water.

Faulty Workmanship

Most policies exclude coverage for damage resulting from faulty structural work, like deck support failure or other construction defects. Even if a renovation property is properly insured under a Builders Risk policy, carriers typically exclude Faulty Workmanship to prevent overlapping coverage. Instead, any damage or negligence caused by a contractor’s workmanship should be covered under their own policy.

These exclusions reflect common limitations in standard investment property policies.

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