What is 'War Exclusion Clause'

A war exclusion clause in an insurance policy specifically excludes coverage for acts of war such as invasion, insurrection, revolution, military coup and terrorism. A war exclusion clause in an insurance contract refers to protection for an insurer who will not be obligated to pay for losses caused by war-related events. Insurance companies commonly exclude coverage perils on which they cannot afford to pay claims.

BREAKING DOWN 'War Exclusion Clause'

Because most insurance companies would be unable to remain solvent, let alone profitable, if an act of war suddenly presented them with thousands or millions of expensive claims, auto, homeowners, renters, commercial property and life insurance policies often have war exclusion clauses. However, entities that are faced with a significant risk of war, such as companies located in politically unstable countries, may be able to purchase a separate war risk insurance policy.

Insurance companies typically won't cover damages caused by war for clear reasons. First, if war breaks out in a country, it could cause a catastrophic amount of damage that would likely bankrupt the insurance company if it were on the hook to cover such damages. Moreover, if an insured individual decides to join the military and go to war, they are voluntarily putting themselves at a much higher risk of getting disabled or killed. As a result, many life and disability policies do not cover losses from war.

War Exclusion Clause History

The war exclusion clause became a hot issue in the insurance industry following the September 11, 2001, terrorist attacks on New York City and Washington D.C. Before the attacks, most war exclusion clauses applied only with respect to contractually assumed liability, on the theory that private persons and organizations could not otherwise incur liability in connection with war. However, after September 11, "war and terrorism" exclusions that broadened the war portion of the exclusion beyond contractually assumed liability were quickly added to liability policies. This development widened the scope of the war exclusion clause, which is now considered standard, regardless of whether terrorism is insured or excluded in the policy.

Two primary factors require the modern version of the war exclusion: the inability of insurance companies to gauge premiums to cover the risk of war and the need for insurance companies to protect themselves against a catastrophic financial disaster that could result from war-level destruction. If private insurers were to assume the normal risks incident to military service in time of war under ordinary premium rates, they would likely go bankrupt.

RELATED TERMS
  1. Full Reporting Clause

    A full reporting clause is an insurance provision requiring the ...
  2. War Bond

    A war bond is a debt security issued by a government for the ...
  3. Absolute Exclusion

    An insurance policy clause that eliminates coverage of certain ...
  4. Valuation Clause

    Valuation clause is a provision in some insurance policies specifying ...
  5. Cooperation Clause

    An insurance contract clause that requires the policyholder to ...
  6. United States Government Life Insurance ...

    United States Government Life Insurance was established in 1919 ...
Related Articles
  1. Insurance

    What To Do If Your Insurance Won't Pay

    Before paying for coverage, find out what you need to do to ensure you get paid.
  2. Investing

    Government Debt: From Billions To Trillions

    The national debt has been growing in leaps and bounds. Find out why.
  3. Insurance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  4. Insurance

    An Advisor's Guide to Prof. Liability Insurance

    A guide to what financial advisors need to know about professional liability insurance.
  5. Insurance

    The History of Insurance in America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  6. Insurance

    Understanding your insurance contract

    Learn how to read one of the most important documents you own: your insurance contract.
  7. Insurance

    The Importance Of Property Insurance

    Property insurance is important, but there's a lot you need to learn in order to get the proper coverage.
  8. Trading

    How global events affect the forex market

    Learn how politics, war and natural disasters move currency prices in the forex market, and how you should respond.
  9. Personal Finance

    Economic Effects Of Life After Military Service

    The end of operations in Iraq and Afghanistan will have an impact on the economy. Discover how.
  10. Insurance

    Is Loan Protection Insurance Right For You?

    Loan protection insurance can keep you from defaulting on your loans when you're in financial trouble, but it's not for everyone. Learn more on how it can help you.
RELATED FAQS
  1. What Does 'Buy on Cannons, Sell on Trumpets' Mean?

    The saying suggests that the start of a war is a good time to invest in the stock market. Read Answer >>
  2. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center