Personal Finance

Exclusions: What your policy won't cover

Exclusions listed in a personal auto insurance policy vary depending upon what state laws permit and then the guidelines of your car insurance company.  When something is noted as excluded on your policy, it means that your policy won't cover it.

Exclusions can be associated with a person, property, location, peril or specific situation.

These limitations to your coverage are important to know so that you don't end up in a situation where you find out after an auto accident that you have no coverage -- or have voided your policy.  (Remember if your policy doesn't cover you, then you'll be stuck paying out-of-pocket usually.)

The most common exclusion regarding a person is a named driver exclusion .  With this, you and your insurer agree to exclude a specific person from your policy's coverages.  This driver isn't rated on your policy, and in return your insurer won't cover the individual if found driving your car.

Here's a look at some of the most common exclusions found in the different parts of a personal auto insurance policy.

Bodily and property damage liability exclusions

Most policies plainly state they don't provide liability coverage:

  • If an insured has intentionally caused injury or property damage .
  • For property damage to property owned (or being transported) by the insured.  (So if you hit your own car you can't make a liability claim)
  • For property damage to property that is rented, used by or in the care of the insured. 
  • For bodily injury to the insured or any member of an insured's family residing in the insured's household. (Some states only allow the policy to reduce the bodily injury limits for family members to the state's minimum)
  • For liability arising out of the ownership or operation of a vehicle being used for "livery conveyance."   This means using your vehicle in transportation of goods or people for payment - so don't use your car as taxi or delivery service.   So, don't use your car for delivering pizzas, or you may void your coverage.

In general, using your vehicle for business purposes can be a no-no according to your liability policy.  For example, it may say that the business of:

  • Selling, repairing servicing, storing or parking vehicles (other than your insured vehicles) is not covered by your liability or physical damage coverages.
  • Maintaining or using any vehicle that the insureds are using to engage in business --other than farming or ranching - may not covered.  (If you are using your vehicle for business, see about a business-use or commercial policy) 

Catastrophic events or exposures are usually marked as excluded as well.  This can include items such as bodily injury or property damage resulting from:

  • Nuclear exposure or explosion - including the resulting fire, radiation, or contamination.
  • Bio-chemical attack or exposure to bio-chemical agents as a result of an act of terrorism.
  • War (declared or undeclared)

Vehicles that are excluded from coverage (or deemed unacceptable to cover for either liability or physical damage coverages) vary but the list may include:

  • One with less than four wheels
  • Designed for use principally off public roads or not registered for use on public roads
  • Any vehicle owned by you or a family member but isn't listed as insured on your policy.
  • Any vehicle furnished for your regular use but isn't listed as insured on your policy.
  • Any vehicle used for the purpose of competing in a race or practicing or preparing for any prearranged or organized racing or speed contest.

Some insurers have amended policies to include an exclusion for any vehicle that is operated, maintained, or used as part of a personal vehicle sharing program.  So, loaning your vehicle out for to a car-sharing service could mean you have no personal coverages.

Physical damage coverage exclusions

Collision and comprehensive coverage are the physical damage coverages offered by auto insurers.  While liability insurance covers those that you damage, collision and comprehensive cover your own vehicle if it's damage.

Exclusions under this portion of the policy can be similar in many ways to the restrictions listed in your liability portion of your policy.  Typically, collision and comprehensive coverage exclusions include loss or damage due to:

  • Wear and tear
  • Freezing
  • Mechanical or electrical breakdown or failure
  • Road damage to tires
  • Catastrophic events - radioactive contamination, nuclear weapon discharge, war, etc.
  • Destruction or confiscation by government or civil authorities
  • Using your vehicle for livery or delivery purposes
  • Vehicle being used for racing purposes
  • Intentional damage
  • Vehicle used in personal car sharing programs (some insurers)

Personal items that are damaged in your vehicle or stolen from it aren't covered, and most policies specifically mention the exclusion of coverage for losses to:

  • Any electronic equipment that is not permanently installed.
  • Custom equipment (or is covered to a specific minimal amount -- such as $2,000) unless you've added a custom parts and equipment endorsement to your policy.

If a vehicle is excluded from liability coverage, then typically it's also unable to obtain physical damage coverage.   However, there are some vehicle that insurers allow to obtain liability but not collision and comprehensive -- such as vehicles with a salvage or rebuilt title.

Medical payments and uninsured motorist bodily injury

Medical coverages you can purchase for yourself as part of an auto insurance policy have exclusions as well.  Typically, they include injuries sustained in circumstances mentioned above, such as catastrophic events, racing or livery service, as well as situations such as:

  • Injured on a motorized vehicle having fewer than four wheels
  • Injured while using the vehicle as a residence
  • Injuries that workers compensation benefits should cover because occurred during the course of work

Besides exclusions, a policy may have other restrictions to look for.  (See "7 gotchas of cheap insurance")  

To be aware of your exclusions and restrictions, read your policy and then contact your car insurance company if you have questions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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