In short: Policy exclusions are the events, losses and situations that an insurance contract expressly does not cover — even if they look similar to those it does.
Simply put: Every policy says what it covers and what it does not. Exclusions often sit in the small print. Common ones are pre-existing conditions, waiting periods and natural disasters such as earthquake or flood, which are sometimes separate cover. In the EU, the main exclusions must appear in the standard product information document (IPID) you receive before a non-life contract.
Example: Kiril insures his home against fire and theft for €120 a year. After a flood he learns that water from a rising river is excluded and receives nothing. Flood cover would have cost extra.
Watch out: The cheapest offer is often cheap because it excludes more. Compare exclusions before price.
Source: Insurance Distribution Directive (EU) 2016/97, Art. 20 — https://eur-lex.europa.eu/eli/dir/2016/97/oj