# Understanding War Risk Insurance: Coverage, Exclusions & Benefits

![War Risk Insurance](https://www.investopedia.com/thmb/Gvm7UH5ecgR0NeLijEuCDlNac58=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WarRiskInsurance4-3Final-c2f4fa6314c54897a8ae9c4c3c238789.png)

*— Investopedia / Matthew Collins*

> **Definition**
>
> A war risk insurance provides financial protection against losses resulting from events such as war, invasions, terrorism, and other violent political upheavals.

## What Is War Risk Insurance?

War risk insurance is an insurance policy that provides financial protection to the policyholder against losses from events such as invasions, insurrections, riots, strikes, revolutions, military coups, and terrorism.

Because standard auto, homeowners, renters, commercial property, fire, and life insurance policies often exclude [war-related events](https://www.investopedia.com/terms/w/war-exclusion-clause.asp), businesses and individuals in high-risk areas or industries such as shipping and aviation may purchase separate war risk insurance riders. Setting premiums for this coverage can be challenging due to the unpredictable nature of such events.

### Key Takeaways

*   War risk insurance covers losses from war-related events, such as invasions, terrorism, and military coups.
*   This insurance is often excluded from standard policies due to high risk and unpredictability.
*   Companies in politically unstable regions or high-risk industries, like aviation and maritime, are prime candidates for war risk insurance.
*   In response to terrorism threats, the U.S. government expanded its support for aviation war risk insurance after 9/11.
*   War risk insurance premiums are challenging to set due to the unpredictable nature of war-related damages.

## How War Risk Insurance Protects Against Political Upheaval

Entities at risk of sudden political upheavals are good candidates for war risk insurance. For example, companies in politically unstable areas face higher risks of loss from war. War risk insurance may cover perils such as kidnappings and ransom, sabotage, emergency evacuation, worker injury, long-term [disability,](https://www.investopedia.com/terms/d/disability-insurance.asp) and loss or damage of property and cargo. 

Also, some policies may cover event cancellations due to war. There are war risk insurance policies that include acts of terrorism, but others consider terrorism and war to be two separate categories of peril. Some countries may require airlines to have war risk insurance before they can operate in their airspace or use their airports.

Industries in the aviation and maritime spheres may have more specific war insurance options tailored to meet their particular needs. For example, war risk insurance may compensate a ship’s owner for the full cost of a vessel in cases where a government seizes the ship. If war activities force a ship into temporary detention, war risk insurance may cover that loss of time. 

The [Bumbershoot policy](https://www.investopedia.com/terms/b/bumbershoot-policy.asp) is a specialized form of excess [liability insurance](https://www.investopedia.com/terms/l/liability_insurance.asp) targeted to the maritime industry.

## Challenges and Considerations in War Risk Insurance

The war exclusion clause became a major issue after the September 11, 2001, attacks on New York City and Washington, D.C. The attacks resulted in about $40 billion in insurance losses. Fears of more attacks or hijackings made the insurance industry reluctant to offer war risk policies.

Insurers canceled issuing many third-party policies and coverage. In response, Congress voted to amend and expand the Federal Aviation Administration (FAA) Aviation War Risk Insurance Program. The law required the FAA to offer war risk insurance to U.S.-based airlines. It also ordered the [premiums](https://www.investopedia.com/terms/i/insurance-premium.asp) for this coverage to be based on the pre-9/11 cost of coverage. The program was in place until 2014, at which point the private industry had increased capacity and lowered prices for war risk insurance.

The difficulty with war risk insurance is the inability of an insurance company to accurately assess the possible outcome of damages and therefore calculate appropriate premiums to charge. Furthermore, the damage from war or related activities can be so vast and unpredictable that even high premiums might not be enough to cover the damage that insurance companies are liable for. This makes war insurance an unknown quantity for insurance companies with a high risk that a war insurance policy could send them into [insolvency](https://www.investopedia.com/terms/i/insolvency.asp).

## The Bottom Line

War risk insurance offers necessary protection against losses from political and military events like invasions, revolutions, and terrorism, which standard polocies exclude. It's especially important for individuals and businesses in high-risk regions or industries such as aviation and maritime, often covering unique perils like ransom or sabotage.

Insurers face challenges in pricing these policies due to the unpredictable scale of war-related damage, as seen after events like Sept. 11, which spurred market adjustments and government support.