Exclusions and Sublimits | What You Need to Know

“Apples to apples” is an idea that affects billions of dollars of insurance advertising spending, even though it doesn’t really work. A more useful phrase is “a little knowledge is a dangerous thing”.

Let me explain. Just like some people do their own taxes, some people do their own insurance. These people believe insurance companies are alike, so to get the best deal they:

  1. Choose a few carriers they’ve heard of
  2. Compare those carriers on price given the same limits and deductibles (“apples to apples”)

Guess what? Insurance carriers are smart…they know this happens and compete accordingly…in two ways that do not help clients:

  1. To get in this price beauty contest carriers spend obscene amounts on brand advertising with little informational value. What the public thinks about them is not so important as long as they think of them.
  2. Once they are in the contest, carriers need to be able to offer competitive prices without modifying limits and deductibles (the apples). Here’s where exclusions and sublimits come in.

If a carrier states you have $100k in coverage, but in the fine print X, Y and Z risks are excluded, presto, you get low prices.

Certain exclusions like flood and earthquake are understandable because many people live in areas without those perils so they shouldn’t be required to pay for them.

Other exclusions like uninsured motorists are questionable because everybody needs it…almost 15% of drivers are uninsured. But carriers make it optional because in a pinch they can omit it to achieve a competitive price.

And some exclusions like “dog bite” are downright ridiculous because dog bite is the number one source of homeowner liability claims. If carriers exclude the top sources of claims, yes they will get low prices, but is that really insurance? Even if you don’t have a dog, if your contract has dog bite exclusion you should start to wonder about what else is in the fine print.

There are many other examples of exclusions and sublimits like sewer back up, jewelry, firearms, collectibles, mold, unnamed perils, auto rental reimbursement, etc. There are also contract differences (e.g. the definition of replacement cost) and service differences (e.g. your claims experience or the quality of your legal representation).

There is no free lunch. Carriers can get low prices by burying things in the fine print that the average consumer will never read. It’s ironic that the carriers spending the most on wasteful advertising are perceived as the most efficient.

As an independent agent I represent quality carriers that don’t waste a lot of money on advertising. Then I use my judgment to get my clients real insurance at a fair price…not the cheapest insurance. After all, Warren Buffett once said “price is what you pay, value is what you get.”

This site is informational and not a substitute for professional advice. Insurance coverage is subject to the language of the policies as issued.