Question

Why do insurance companies need to identify both conditions and exclusions in an insurance policy? Why should businesspeople purchasing insurance make sure they clearly understand the conditions and exclusions?

Answer 1

Insurance policies needs to identify conditions and exclusions in an insurance policy while offering the insurance product to ensure that the companies don't carry unlimited liabilities on the insurance products that they are offering. In case the conditions and exceptions or exclusions are not built in a product, then a insurer can end up proividing coverage for all kind of events and in that case, pricing the insurance and also determining the probabilities of events and expected loss would be very difficult. These would also mean that liabilities of the insurer could potentially be huge. And to curtail them, the insurers has to be build in exclusions and necessary conditions to process the claim.

The business person opting for the insurance should also clearly understand these conditions and exclusions to make sure their business risks are adequately covered and insured against by the product and they are not exposed to risks inspite of taking the insurance product. In case there are some additional risks which the business could potentially have that are not covered under the conditions, then the business should go for other products to have a complete insurance against all kind of risks.