What does "exclusion" refer to in an insurance policy?

In the context of an insurance policy, "exclusion" refers to specific perils, locations, or types of property that are not covered under the terms of the policy. This is a critical aspect of understanding insurance coverage, as exclusions clarify the limits of protection that the policy provides. For instance, a homeowners insurance policy may exclude certain natural disasters like floods or earthquakes.

Recognizing what is excluded helps policyholders understand their exposure to risk and may guide them in obtaining additional coverage if necessary. This delineation ensures that both the insurer and the insured are aware of the scope of coverage and can avoid misunderstandings when a claim is made. Thus, identifying exclusions in an insurance policy is essential for effective risk management and financial planning.