Insurance policies come with fine print that can catch even experienced investors off guard. As an insurance agent, your role is to clarify where coverage ends, so your clients avoid surprises and can make informed decisions about their risks. Use this guide to confidently explain the key exclusions on investment property policies and open the door to conversations about adding the right supplemental coverages.  

Typical Exclusions

Start the conversation by setting expectations about exclusions. Explain that while insurance is designed to protect against sudden, unexpected damage, it does not cover just any loss that may occur. Many risks—like natural disasters or tenant misuse—are either too costly to insure or are outside the scope of a standard policy.  

Wear-and-Tear*

Many property owners expect insurance to cover all damage, but gradual deterioration like worn carpet, faded paint, or aging appliances is never covered. Investors should understand that these are considered normal costs of doing business and must be managed through tenant turnover preparations or security deposits. This is a great moment to reinforce the importance of regular maintenance to prevent small issues from becoming bigger problems, and to budget accordingly for these predictable costs.  

Intentional Tenant Damage

It is also common for clients to assume that under a landlord policy, tenant damage is insured. However, intentional tenant damage, such as graffiti, broken doors, or missing appliances, is almost always excluded as there is a written contract (the lease) entrusting the tenant with the care of the property. Walk your clients through how their lease agreements and security deposits are their best protection in these scenarios. This also highlights the importance of screening tenants and having solid lease terms.  

Mold & Fungus

Mold and fungal damage can silently ruin a property and affect tenant health, but coverage is limited or excluded on most policies. Use this point to emphasize the critical nature of addressing water leaks or flood damage immediately. Some policies have mold exclusions tied to pollution or water damage, so clients should be aware this risk often falls outside their standard protection.  

Sewer & Drain Backup

Standard policies exclude damage caused by backed-up sewers causing sewage or water to come up into the home through drains in showers, toilets, or sinks. This is a great opportunity to introduce additional coverage options like REInsurePro’s Tenant Protector Plan®.  

Natural Disasters

Among the riskiest and most costly exposures, natural disasters are typically excluded from standard policies. Explain to clients that:  

• Damage from sudden earth movements is excluded due to unpredictability and severity. Supplemental Earth Movement coverage (where available) or endorsements can provide protection.  

• Flood damage from external natural water sources like rivers, lakes, or heavy rain is also excluded from most policies. Flood insurance must be purchased separately, either through the NFIP or a private insurer.  

Emphasize that these specialized coverages may be essential in many areas to avoid significant uninsured losses.  

Habitability

Exclusions associated with maintaining a habitable environment for tenants has been a big topic of discussion in recent months. The habitability endorsement cites exclusions for wrongful eviction, wrongful entry, along with failing to maintain the property to a reasonable standard, often violating codes and regulations set forth by state or federal organizations. As noted above in other sections, regular maintenance and communication about the condition of the property with the property manager or tenants limits the exposure for these types of losses.  

Faulty Workmanship*

Most insurance policies exclude coverage for property damage resulting from faulty structural work such as deck support failure or other construction defects. For clients involved in renovations or new builds, clarify that Faulty Workmanship is typically excluded to prevent overlapping coverage as any damage or negligence caused by a contractor’s workmanship should be covered under their own insurance policy.  

Turning Exclusions into Opportunities

Close the conversation by reminding clients that understanding exclusions empowers them to manage risks proactively. Many exclusions can be addressed through endorsements or separate policies. Encourage your clients to read their policies carefully and ask questions if something isn’t clear. It’s also a good idea to reassure clients that you’re there to help in any way, so they can protect their investments fully and confidently! 

 

*There is no coverage for repair or replacement of the proximate cause of a loss due to wear & tear or faulty workmanship (i.e. plumbing); however, there may be an opportunity for coverage of the ensuing damage, if the event was sudden and accidental (i.e. pipe bursts, etc). A long-term or ongoing loss will likely not be covered (i.e. repeated water leak from AC unit).