When it comes time to choose an insurance policy, especially a homeowners insurance policy, you might find yourself a little overwhelmed by the sheer number of options you can choose from. Not only do you have to choose a provider, but you have to select which add-ons you want, which options you think are best for you, and what preferences you need.
It can be a lot, and it isn’t helped by the fact that a lot of the options are rather confusing. You might find yourself unsure of what a certain term means. If you don’t know the term, how can you decide if it’s best for you and your insurance needs?
One such term (or two such terms, really) are named perils and all risk. With most insurance policies, you’ll have to choose between named perils and all risk. But what does the difference actually mean?
What is a named perils insurance policy?
Let’s start by defining what the word “perils” means here. In insurance terms, a peril is any event that causes damage to the insured object. Some examples of perils are fires, vandals, and storms.
A named perils insurance policy is one where the perils that are covered are explicitly named. A named perils insurance policy starts with the assumption that no perils are covered, and then adds perils to it. For instance, if the named perils in your policy are snowstorms, rainstorms, windstorms, and fires, then your insurance won’t cover damage caused by earthquakes, floods, vandals, or anything else other than those four listed perils.
For some insurance companies, you can adjust what perils are covered in a named perils policy. For other companies, their named perils are set, and you’ll need to choose a different plan if you want to customize it.
What is an all risk insurance policy?
An all risk insurance policy handles things in a nearly opposite manner. This type of coverage assumes that every peril is covered, unless stated otherwise. Full coverage is the starting point.
An all risk insurance policy will have a section titled “exclusions,” which will list all of the perils that aren’t included. So if, for instance, your all risk insurance policy lists earthquakes as the lone exclusion, then your home is covered for every single peril other than earthquakes.
Most all risk insurance options are somewhat customizable, and your price will change depending on what exclusions you want.
What is the difference between named perils and all risk?
Named perils and all risk insurance policies usually cover similar things, but as you can see there are key differences in how they’re structured. A named perils policy starts with nothing covered, and adds on perils that are covered; on the other hand, an all risk policy starts with everything covered, and deducts exclusions along the way.
Is named perils or all risk better?
Usually both named perils and all risk insurance policies are customizable, so in theory you could customize them to be virtually the same thing. In most cases, though, an all risk policy is better, because they usually tend to be a lot more comprehensive. However, you pay more for better coverage, so it’s a tradeoff.
As with all insurance decisions, finding the right policy for you means figuring out what your needs are, and what your budget is, and then finding a healthy compromise that gives you the coverage you want for the price you can afford.