Named Peril or All-Risk for Home Insurance?

December 11, 2018

dirt road, field, sunset

By Mike Tangorra

Have you ever heard the phrase, you get what you pay for? Well, this couldn’t be more true when it comes to insurance and what you’re protecting. The average water claim is around $20,000. If you don’t have the proper wording to cover this type of loss under your policy, you might be out thousands of dollars on the claims side just to save a couple of hundred on the front end. Some Insurance companies bank on you being an uneducated consumer with a focus on price.

What’s the differences between an all-risk and a named peril insurance policy, and which is better in a given situation?

Essentially, insurers write two kinds of policies for homeowners and small businesses: named peril and all-risk (also known as a comprehensive policy or an open peril policy by some insurers).

Here’s how they differ:

A named peril insurance policy covers only what is specifically noted in the policy. For example, if it doesn’t say you’re covered for vandalism damages or backed up sewers, you aren’t. Since the named peril insurance policy only covers specific perils, it is usually less expensive than an all-risk or open peril insurance policy. A typical broad form named peril policy would cover fire, windstorm, hail, aircraft, riot, vandalism, explosion and smoke. When coverage is written on a named peril basis, the burden is on the insured to prove that one of the named perils caused the loss.

An all-risk or open peril policy covers everything except what is specifically excluded in the policy. The all-risk insurance policy is usually more expensive than the named peril policy because it is more comprehensive. Under an all-risk policy, the burden is on the insurance company to prove that the peril causing the damage is not excluded; otherwise, coverage applies

So which insurance is the better choice? Most lenders require that you carry a comprehensive policy to protect its investment. For all others, the type of insurance to purchase should be need-based depending on your location and the type of property to be protected. The advantage of an all-risk policy is that it covers you in the event of a loss you did not predict. Even though an all-risk policy will cost more, in a world where freak accidents happen, the broader your insurance coverage, the better off you’ll probably be.