What is an Exclusion? - Insurance Navy. In insurance, an exclusion refers to specific situations, conditions, events, or circumstances not covered by an insurance policy. It is a provision within an insurance policy that eliminates coverage for certain acts, property, types of damage, or locations. These could include illegal activities, criminal actions, dangerous activities, personal property, or different types of risks like catastrophic risks. policy exclusions are written to limit exposure to risks insurance providers face. By excluding certain types of risk, the insurer can keep premiums lower for policyholders, as they do not have to account for these additional costs. For example, in homeowners insurance policies, insurance companies might include a list of exclusions of certain damages caused by sewage backup, floods, or catastrophic events like an earthquake. It’s crucial for policyholders to thoroughly read and understand the exclusions in their insurance policies to avoid unexpected out-of-pocket expenses.