What is an Insurance Peril?
No worries, insurance peril doesn’t mean you’re in peril of losing your coverage if you’re unfamiliar, and that’s your first thought. This isn’t a consequence orientated-piece full of warnings of what not to do, but a guide to what perils your homeowners or renters insurance will and will not include. Of course, we’ll also cover the nitpicking details like the difference between a hazard and peril in terms of insurance and the specific types of perils there are.
What is a Peril in Homeowners Insurance?
An event that causes damage to your home is defined as a peril in insurance terms. They can be due to weather, accidents, or crime.
Some examples of perils are:
- Fire and combustion
- Hail, rain, and snowstorms
- Explosion due to internal malfunction
- Car or airplane crash
- Falling debris or tree branches
- Roof collapse due to snowfall
- Water damage due to internal flooding
What Are The Perils Not Covered by Insurance?
While on the topic of what is covered by peril insurance, let’s also go over what perils aren’t. These tend to be more state-specific disasters or weather conditions that often require a policy and coverage of their own. Some examples would be hurricane insurance in Louisiana or earthquake insurance in California.
- Exterior water damage
- Exterior flooding
- Sewage backup
- Old age and decay
- Maintenance problems
What Are The Different Types of Insurance Perils?
Now that we’re aware of what the perils are let’s elaborate on how they are categorized. Fortunately, with perils, there are only two categories by which they are organized.
In turn, these are the two types of policies that can include perils:
- Open peril - The most common type of the two, open peril allows policyholders the convenience of purchasing a policy that covers a wide range of perils without naming them. However, the coverage isn’t limitless and comes with a list of exclusions that could be added for extra.
- Named peril - Typically, all the covered perils are listed specifically in a named peril policy. In addition to the usual peril coverage, you can name specific perils like earthquake or hurricane damage in order to be insured should they ever happen. This is a good policy for those with state-specific disasters like tornados or wildfires.
Which is Better, Open or Named Peril Insurance?
While both types of peril insurance can be arranged to cover the same things with equal coverage, the difference is always the cost. Those with open peril typically pay more than those with broader coverage. That seems natural, with the costs of the insurance being directly related to how many perils are covered in the property policy. So shoppers have a choice, save and only be covered in the event of certain perils or spend more to be insured in nearly every situation. At the same time, you have the freedom to exclude certain perils from your policy. It’s a personalized process where the total cost is determined by you.
What is The Difference Between a Peril And a Hazard?
The easiest way to think about the relationship between a peril and a hazard is cause and effect. A hazard is something that increases the likelihood of or causes a peril. An example would be the open flame of a candle as the hazard and the fire damage it causes is the peril. When an insurance provider says they cover hazards, they are referring to perils in the same sense. That being said, there are four different types of hazards.
These hazard types are:
- Physical - Something which can cause a peril to happen. This can be the candle example mentioned earlier or something like a roof collapse due to accumulating snow.
- Legal - Something which can result in a lawsuit like a pet dog biting someone. But be aware there are certain types of breeds that aren’t covered by insurance.
- Moral - If you were to engage in fraudulent activity in order to receive an insurance payout. This can be something as leaving the door unlocked in hopes of receiving a theft payout or committing arson for a fire damage payout.
- Morale - Different from moral hazards in the sense that a reckless act rather than a natural hazard result in a peril. An example would be forgetting or being too lazy to shut the garage door.
What Are The Different Insurance Forms And The Perils They Cover?
Let’s talk more about homeowners insurance policies and the types of perils they cover. Homeowners insurance is grouped into four different policies, one of which is renters insurance.
These insurance policies are:
- HO-2 - This type of homeowners policy offers named perils for the structure of the property and personal property inside.
- HO-3 - This type of homeowners policy offers open perils for the structure of the property and named perils for the personal property inside.
- HO-4 (renters insurance) - Renters insurance doesn’t cover the property structure as it is the property owner or land lord’s responsibility to purchase a policy of their own. Renters receive named perils for their personal property within their apartment.
- HO-5 - This type of homeowners policy offers open perils for the structure of the property and personal property inside.
What is “Perils Insured Against?”
If you look at your named peril insurance policy, you’ll find a section called “perils insured against.” An open peril policy wouldn’t have one as this is the list of perils you won’t be covered for. Again, these may be state-specific exceptions like how in Louisiana, you would be expected to purchase separate flood and hurricane peril coverage.
Is There Peril Coverage For Cars?
When it comes to car insurance, the only thing close to peril coverage you would have is comprehensive coverage. While you may be familiar with collision auto insurance, comprehensive insurance provides coverage for damages your car sustains while it is parked or not moving -just as a home does. This can include vandalism, theft, and falling debris. Comprehensive coverage is also known for providing coverage for earthquake and flood damage -some things not usually included in peril coverage.