What Is a Named Perils Insurance Policy?
Let me explain what a named perils insurance policy is. It's a type of home or business insurance that only covers losses to your property from the specific hazards or events listed right there in the policy. You might choose this as a cheaper option compared to comprehensive or broad policies, which generally cover most perils.
How a Named Perils Insurance Policy Works
Here's how it operates in practice. If you own a home and don't live in an area prone to earthquakes or flooding, you could opt for a named perils policy and just include coverage for things like fire, theft, and hail, skipping the earthquake and flood parts entirely.
Key Takeaways
- A named perils insurance policy only provides coverage on losses incurred to your property from events or risks named on the plan.
- Homeowners may purchase a named perils insurance policy and only declare coverage against hazards like theft or fire.
- If a homeowner lives in a flood zone, they may elect to get a named perils insurance policy rather than earthquake coverage.
- Theft, fire, and natural disasters like hail, earthquakes, and flooding are events or hazards that may be declared on a named perils insurance policy.
- When a person purchases an all risks policy, it covers all perils except those expressly excluded from the list.
Additional Considerations
Keep in mind that an all risks policy doesn't guarantee coverage against every possible peril. You should check your broad coverage policies to ensure they include all the perils you're worried about. If they don't, consider buying a named perils policy to fill those gaps in your coverage.
Named Perils Insurance vs. All Risks Insurance
Insurance providers typically offer two main types of property coverage for homeowners and businesses: named perils and all risks. An all risks policy automatically covers any risk that isn't explicitly excluded in the contract. For instance, if your all-risk homeowner's policy doesn't exclude hurricane damage, your house is covered if a hurricane hits.
A named perils policy includes conditions for what the insurer sees as the most likely perils. It only covers the perils specifically listed in the policy. Take an example: if the contract says it covers losses from fire or vandalism, then if you have damage from a flood, you can't claim it because flood isn't named. Under this type of policy, you, the insured, bear the burden of proof.
In contrast, an all risks policy covers you from all perils except those specifically excluded. It doesn't list what's covered; instead, it lists what's not. So, anything not mentioned as excluded is automatically covered.
Special Considerations
Common perils excluded from all risks policies include earthquakes, war, government seizure or destruction, wear and tear, infestation, pollution, nuclear hazards, and market loss. If you need coverage for one of these excluded events under an all risks policy, you can often pay an additional premium for a rider or floater to include it in the contract.
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