Named Perils

Reviewed by Stefan Tirschler

Noun

named per·ils | ˈneɪmd ˈpɛrəlz

Definition: A type of insurance policy that only offers coverage for losses resulting from perils that are explicitly stated in the policy wordings.

Stacy decided that a named perils policy didn’t offer sufficient coverage for her vacation home.

What is a named perils policy?

Named perils home insurance policies offer the narrowest coverage. They only protect against a short list of covered perils: the perils named on the policy.

A peril is an event that causes damage or other loss. Fire, theft, flooding, or vandalism are all examples of perils.

Named perils insurance policies are one of three main policy types:

  • Named perils
  • Broad form
  • Comprehensive (a.k.a. all perils)

At the bottom of the scale, named perils policies only protect against specific perils. In the middle are broad form policies, which offer a mix of named perils and comprehensive coverage. At the top are comprehensive policies. These protect against any peril, except for the ones listed as exceptions.

What does a named perils policy cover?

Not every named perils policy names the same perils.

There are a few common perils that you’ll find on nearly every home insurance policy:

  • Fire, lightning, and explosion
  • Windstorm and hail
  • Vandalism and malicious acts
  • Impact by vehicle or aircraft
  • Smoke
  • Weight of ice, sleet, or snow
  • Civil disturbances or riots
  • Falling objects

Some named perils policies might include a few other perils as well, but you get the idea. While they do cover many of the “big” perils, most named perils policies don’t offer protection against earthquakes or floods (for example). Depending on where you live, going without flood coverage might be a risky course of action.

The coverage that named perils policies offer is too narrow to be useful to the typical homeowner. Insurance providers usually offer them only in certain circumstances. A house that’s in the middle of major renovations (with most of its contents removed) might be a good subject for a named perils policy, as would a vacation home in a remote area.

While a named perils policy can be a way to save money on premiums, the narrow coverage carries a substantial risk of suffering an uninsured loss. One uninsured loss can wipe out years of premium savings:

Example

A few years ago, Tommy bought a new insurance policy for his new house. He’s always been frugal, so he bought the cheapest policy he could find: a named perils policy. He wasn’t worried about uninsured losses; he was happy to have coverage for common things like fires or windstorms.

His named perils policy saved him about $30/month compared to the cheapest comprehensive policy. Over the three years since, he’s saved just over $1,000! Not bad.

Fast-forwarding to the present, Tommy’s basement flooded last month after a once-in-a-century rainstorm. Unfortunately, flooding was not one of the perils named on his policy, so his insurance policy couldn’t respond to help him pay for the damage. Tommy was forced to pay over $15,000 out-of-pocket to repair his basement and replace his damaged furniture.

Because of situations like Tommy’s, insurers usually recommend that homeowners seek broad form or comprehensive policies, even when they’re looking to save money. The price difference between named perils policies and comprehensive ones isn’t always massive. Certainly, most homeowners find the peace of mind to be worth the extra cost.

If you’re concerned about saving money on your home insurance, it pays to shop around for the right comprehensive policy rather than roll the dice with a named perils policy.

The important points

  • Named perils home insurance policies only protect against perils listed in the policy wordings.
  • Named perils policies are usually the cheapest option, but offer accordingly narrow coverage.
  • Most homeowners need broader coverage than that provided by a named perils policy.
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