An insurance contract involves the transfer of a risk (a fortuity) in exchange for money (called premium). The insurer becomes obligated to pay or indemnify a policyholder on the happening of the fortuity insured against. Insurance is by nature a contract based on speculation.
The insurer calculates the risk before accepting it. This is called underwriting. The underwriting process involves an assessment of the potential risks, the level of coverage the insurer is prepared to offer, any specific exclusions the insurer wants to impose, and the price (premium) to be paid in exchange for the risk. Underwriting relies on actuarial analysis of statistical data based on past experience and future predictions.
There are certain risks an insurer is not prepared to take. The insurer then writes these out of the policy by way of exclusions. There are always exclusions in insurance policies. The reasons for having exclusions are varied. Some risks are too large to take (for example, most policies will exclude cover for claims related to leaky buildings because these claims occur often and are costly), other risks are too likely to happen (for example claims for damage to cars when driving under the influence of alcohol). Other exclusions are obvious – for example exclusions for intentional damage. Insurance must be related to a fortuity, while an intentional act is not a fortuity. But not all exclusions are obvious. For example, some travel policies exclude cover for injuries sustained while skiing (because it is considered a high risk activity); some home policies exclude damage caused by your domestic pets; others exclude the costs to comply with heritage covenants if your house is a registered heritage home.
Always check your policy to understand what is excluded.