Posted in Finance, Accounting and Economics Terms, Total Reads: 431
Definition: Wear And Tear Exclusion
Wear and tear exclusions are provisions that are part of an insurance contract for the purpose of excluding losses that result from the natural usage or deterioration over time. The wear and tear exclusion prevents insurers from making a claim on property losses that result from wear and tear that has occurred from the natural usage of the property over time. The purpose of insurance is primarily to protect against losses attributed to unforeseen events.
Since, maintenance losses due to wear and tear are predictable in nature, they do not represent a risk of loss of property and as such, insurances typically do not cover these losses. Insurers can raise premiums to cover for any maintenance expenses.
Consider an auto insurance policy that protects the investor from damages to his vehicle in the event of unforeseen circumstances such as a natural calamity or an accident. The policy will have a wear and tear exclusion that does not cover claims pertaining to replacement of specific parts of the vehicle that have deteriorated with normal usage over time. Examples of such parts include brake pads, gear boxes, etc. For maintenance purposes, owners of such property can prepare for the predictable losses from wear and tear by setting aside money on a regular basis to cover for such expenses. Extended warranties provide are prolonged warranties that provide protection over the period of the standard warranty. Extended warranties, also called service or maintenance agreements, cover damages from breakdowns and wear and tear of certain parts. These warranties are an additional cost to the consumer over the standard warranty that is associated with the purchase of the property.