What is a risk?
Let’s start with the concept of “risk” or “peril,” which are words that insurance professionals use frequently. What is a risk or peril? It’s simply the cause of a loss or damage. Water damage or a tree falling on a roof are risks or perils. Once the risks or perils have been described, you know what is covered and what is not.
Named perils
Based on this explanation of risk or peril, a named peril is a risk specified in writing in the insurance policy. That peril will therefore be covered. By default, anything not named is excluded. The most common named perils are the ones we tend to think of first when we think about insurance: theft and fire.
All risks
All risks is the opposite of named perils. Instead of mentioning which perils are covered, everything is assumed to be covered. Of course, that coverage is much more comprehensive. In addition to the perils you might already expect, “unexplained loss” is generally covered.
Named perils and all risks in the same policy
It’s possible to have a policy that says all risks coverage applies to your building or leasehold improvements but named perils coverage applies to your personal property. It’s also possible to have an all risks policy with a few types of property that would be named perils. That’s why it’s important to read your insurance contract carefully and consult a general insurance agent, who’s a professional with the necessary training to answer your questions.
Exclusions and additional coverage
Important! Whether the coverage is named perils or all risks, there are always exclusions in home insurance policies. Certain risks are always excluded from basic policies. Some obvious risks such as wars and nuclear accidents aren’t covered but there are also some simple risks such as normal wear and tear or gradual depletion that are excluded.
That may be the key part of your policy because in many cases you can choose additional coverage (called an endorsem*nt, rider or floater) for that risk by paying the applicable cost.
Summary
- Named perils coverage designates what’s covered but also has exclusions.
- All risks coverage assumes that everything is covered, with the exception of the exclusions.
- Coverage options can be added for certain exclusions.
