Define the Difference
Many of our clients ask me: “What is the difference between Named Perils insurance coverage and All Risk Coverage?”
It’s a great question because understanding the difference can help you and your broker decide what priorities are most important to you when building your insurance program.
Insurers generally offer two kinds of Property Insurance Policies for Homeowners and Businesses:
- a) Named Perils Insurance Policy – a policy that specifically identifies a covered loss by name
- b) All Risk Insurance Policy – (also known as Comprehensive Coverage) a policy that covers everything except for what is specifically excluded
Let’s look at these in more detail.
Named Perils Policy:
Generally Limited Coverage
A Named Perils Insurance Policy covers only what is specifically noted in the policy. If the policy does not specifically state that a particular peril (event that can cause a loss) is covered, the peril – or the cause of loss – is NOT covered. I’ll say this again in a different way, just to be clear: your policy does NOT cover ANYTHING that is not identified as a cause of loss inside your policy… that is the named, identified perils.
Since the Named Peril insurance policy only covers specific perils, it is less expensive than an All-Risk insurance policy. Just a note: there are differences between a homeowner’s named perils policy and commercial policy of the same nature. Generally speaking, however, a named peril policy typically covers loses that are caused by:
– Fire & Lightening
– Aircraft & Land Vehicles
(among other things)
NOTE : Flood insurance and earthquake are NOT covered. When a loss occurs, the burden to prove that one of the named perils caused the loss, is on you, the insured.
Let’s look at how All-Risk policies differ.
All-Risk Insurance Policy:
Generally Safer Coverage
Often referred to as a Comprehensive Insurance Policy, an All-Risk policy covers everything except the types of events that are specifically excluded in the policy. More often than not, an All-Risk policy protects you in the event that a loss occurs due to some peril that you do not anticipate – different, of course, from a Named Perils policy where you accept a designated list of specified perils (or causes of loss).
Because the insurance coverage is far more broad, the All-Risk Insurance Policy is more expensive than the named perils policy. It protects you from a greater number of possible loss events. Contrary to a Named Perils Insurance Policy, the conditions, exclusions and limitations determine what coverage is afforded under an All-Risk policy.
The most common perils excluded in an All-Risk policy include the following:
– War, Terrorism
– Earthquake or earth movement
– Flood, mudslide, sewer back up, including surface water after heavy rain etc.
– Governmental seizure or destruction of property
– Off-premises utility interruption
– Building ordinance or law (Bylaws)
– Employee dishonesty (crime)
– Wear and tear; rust, corrosion, fungus, decay, deterioration, hidden or latent defect, smog, settling, cracking, shrinking etc.
– Infestation by insects, vermin, birds or rodents
– Interior building damage (unless first caused by a non-excluded peril)
– Mechanical breakdown; electrical damage to devices
– Theft of building materials and supplies not yet attached to buildings
Many of these above coverage’s can be purchased for an additional premium.
What Does it all Mean?
Of course, no policy is the same as the next. It is important to read and understand the wordings (the fine print) so that you are fully aware of what your policy excludes.
In addition to the exclusions listed above, your property insurance policy does not cover replacement cost, business interruption or loss of income insurance. These are also examples of additional coverage options that are available when purchasing your property insurance policy.
As a final note, most lenders today will require you to carry an all risk policy with replacement cost and a minimum indemnity period to protect their investment. If you’ve not heard about this, its another reason for us to talk.