Final answer:
An exclusion or exclusion clause in a life insurance policy specifies the risks not covered by the policy, managing moral hazard and potential financial losses for the insurer.
Step-by-step explanation:
A clause contained in a life insurance policy that states the policy will NOT cover certain risks is typically known as an exclusion or exclusion clause. These exclusions are critical in managing moral hazard, which occurs when an individual engages in riskier behavior knowing that they are insured. Insurance companies employ these exclusions and may adjust their premiums or decide not to sell to high-risk individuals to mitigate potential financial losses and adverse selection scenarios, wherein people most likely to make a claim are those seeking insurance.