Insurance Term: Peril

peril

In Insurance the term “peril” is:

  • The cause of an injury,
  • The reason something is damaged or destroyed,
  • The way something was lost or is no longer in your possession.

Insurance companies generally label a particular risk as a “peril” which may cause a loss or damage. A peril may include such things as fire, earthquake, windstorm, flood, or theft to name just a few.

Most Insurance policies, breakdown perils into several categorize:

  • Named Peril coverage sometimes known as Specified Peril Insurance. These policies cover losses for only a named peril specifically stated in the policy. For example, a Standard Fire Policy will cover the two specifically named perils of fire and lightning. Other perils can be added by endorsement, such as theft and vandalism, or malicious mischief. Additional coverage for Earthquake might be considered, or obtaining Flood Insurance may be needed if the risk flood is high.
    Named peril policies specify the perils, causes of damage or loss, and states the policy limits. These policies generally offer the lowest premium and the fewest risks of loss will be covered.
  • All-Risk insurance or open peril coverage is generally more expensive however, an all-risk policy will cover losses and pay claims for damages to personal property when the peril is direct, sudden and accidental and isn’t excluded in the policy. “All-risk” policies cover all perils that are not specifically listed as excluded the policy contract. Often, the terms “comprehensive” or “open peril” are used to define all-risk coverage.

With an all-risk policy the premium is generally higher, and the coverage is broad. However, careful review of the “excluded” causes of loss should be made. Even the most comprehensive homeowner policy for example doesn’t cover losses caused by flooding, and may not include earthquake without an endorsement.

Many preferred or premier package insurance policies are written as “all-risk”, meaning all perils will be covered unless specifically named and excluded. The differences between a basic standard packaged insurance policies the perils that are covered. The more perils covered, the more insurance coverage you have against a wider range of perils.

Qualifying for the preferred or premium packages of insurance policies depends on the overall underwriting process each insurance company develops. Locations, property type and value as well as your personal Insurance Credit Score all goes into determining the type of insurance package a company may have or offer to you.

Photo credit for this blog entry: sxc (no use restrictions for this photo)

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