By Jason Jones
SVP, Risk Management
The National Real Estate Insurance Group
Exclusions outline what your insurance policy does not cover. Carriers often exclude costly risks like earthquakes or those deemed the owner’s responsibility, such as wear-and-tear or mold. Insurance covers sudden, accidental damage, not gradual or preventable issues.
Knowing which losses are typically excluded helps clarify retained risks and prevent coverage assumptions. Some exclusions can be bought back by endorsement or separate policy.
Standard homeowners policies often exclude business-related losses, including those resulting from rental activities. Investors must have a policy designed specifically for investment properties to ensure proper protection.
Wear-and-Tear
Normal wear and tear is expected from regular use. As an investor, you should be prepared to pay for carpet cleaning or a fresh coat of paint between renters. Wear-and-tear and deterioration are industry-wide exclusions. These small “repairs” can be covered by the security deposit or accepted as the cost of doing business.
Intentional Tenant Damage
Many investors assume that any damage done by a tenant will be covered by their property policy. Intentional tenant damage is usually a sudden, one-time event and may include damage such as broken doors, missing appliances, or spray-painted walls. Damage done by tenants is typically excluded and not considered vandalism or theft to most carriers as you have a lease entrusting the tenant with the care of your property. That contract should stipulate penalties for misuse of the property, whether that be withholding the security deposit or filing a civil lawsuit.
Mold & Fungus
Standing water from floods, backups, etc. can cause mold within 24-48 hours. Coverage for mold, mildew, and fungus is typically completely excluded or very limited. As insurers differ, policy language may mention “mold,” “organic pathogens,” “mycotoxins,” or “penicillium.” Policies may also exclude wet/dry rot and bacteria. Some courts of law treat mold as a pollutant. As such, mold may not be covered if the policy has an absolute pollution exclusion. Mold can damage building materials and affect tenant health.
Sewer & Drain Backup
Tree-root blockages or clogs may cause sewage to back up through drains in the home. This water backup or overflow from a sewer, drain, or sump is typically excluded from standard property policies. For these losses to be covered, you’ll need to purchase a Sewer & Drain Backup endorsement.
Natural Disasters: Earthquake, Sinkholes & Flood
Standard property policies typically exclude damage from earthquakes, sinkholes, and floods due to their catastrophic and unpredictable nature. However, coverage is often available for all three through an endorsement or separate policy. Flood damage must come from an external source, such as overflowing rivers or heavy rain, not from internal plumbing or sewer systems. Most also exclude surface water, tides, waves, and overflow from any body of water.
Faulty Workmanship
Most policies exclude coverage for damage resulting from faulty structural work, like deck support failure or other construction defects. Even if a renovation property is properly insured under a Builders Risk policy, carriers typically exclude Faulty Workmanship to prevent overlapping coverage. Instead, any damage or negligence caused by a contractor’s workmanship should be covered under their own policy.
These exclusions reflect common limitations in standard investment property policies and do not represent the specific terms of any NREIG policy.
Have confidence in your coverage.
At National Real Estate Insurance Group, investment properties are all we insure. Our expert team can review your current policy, compare it with our offerings, and identify any gaps in coverage–all at no cost to you. Contact us today for your complimentary policy review.
About NREIG:
NREIG is a national, independent insurance agency, offering the most comprehensive, and flexible industry-leading insurance program for residential real estate investment properties. Our team of advisors and specialists delivers unmatched service and streamlined insurance solutions for investors with single-family and small multifamily rentals, renovation projects, and vacant homes. Seamlessly make coverage changes as your portfolio fluctuates and pay only for the coverage you need each month.
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