Named Peril Policy

What Does Named Peril Policy Mean?

A named peril policy is an insurance policy for property (such as a residential home or business building) that provides coverage only for specific hazards listed in the policy. If the property is damaged by a peril not included in the list, the insurance company is not obligated to provide coverage.

Insuranceopedia Explains Named Peril Policy

Insuring property involves understanding not only the property’s condition but also the risks associated with its location. For example, if the property is in a flood-prone area, it would be prudent for the owner to purchase insurance that covers flood damage. Similarly, if specific hazards such as fire or earthquakes are anticipated, a named peril policy might be a suitable choice. Fire is one of the perils that most named policies specifically list, which is why questions about whether homeowners insurance covers fire damage usually come down to the exact wording of the policy.

However, hazards can never be fully predicted. Under a named peril policy, if the property is damaged by an event, such as a burglary, that is not covered in the policy, the owner will bear the full cost of the damages. Named peril coverage is also the basic structure behind hazard insurance, which lenders sometimes require on top of a standard policy.

To address this uncertainty, some people opt for an open peril policy, which, although more expensive, provides coverage for damages caused by events not explicitly listed in the policy. It is important to note that even open peril policies are not entirely comprehensive, as they include exclusions. Despite these limitations, lending banks often prefer open peril policies over named peril policies due to their broader coverage. When shopping around, it helps to compare how different carriers handle named versus open peril coverage, something that varies widely across the best homeowners insurance companies.