Which is Better? All-risk or Named Peril?

Al-lrisk insurance or a named peril insurance policy, which is better in a given situation?

Basically, insurance companies write two types of policies for homeowners and small businesses: named peril and all risk (all-risk is also known as an open peril policy or a comprehensive).

What’s the Difference?

The “named peril” insurance policy covers only what is specifically mentioned in the policy.  If the policy says it doesn’t say you’re covered for vandalism damages or backed up sewers, you are not covered. The named peril insurance policy only covers specific perils, so it is usually less expensive than an all-risk or open peril insurance policy.

A typical named peril policy would cover fire, windstorm, hail, aircraft, riot, vandalism, explosion and smoke. Flood insurance and earthquake insurance are two other common examples of named peril policies, and are generally written as separate policies.   When coverage is written as a named peril basis, the burden is on you, the insured, to prove that one of the named perils caused the loss.

An “all-risk” or open peril policy covers everything that is not specifically excluded in the insurance policy. The all-risk insurance policy usually costs more than the named peril policy because it offers more comprehensive coverage. Also, under an all-risk policy, the burden is not on you, but on the insurance company, to prove that the peril causing the damage is not excluded; if it’s not excluded then coverage applies. The exclusions and limitations are the key to determining what coverage is provided by an all-risk policy.

The most common perils excluded in an all-risk policy include:

•War

•Flood, mudslide, seepage & sewer backup (and sometimes surface water that builds up after heavy rains, underwater springs, groundwater, burst water pipes, overflowing toilets, and wind or wave-driven water)

•Governmental seizure or destruction of property

•Boiler explosion

•Off-premises utility service interruption

•Building ordinance or law

•Seepage or leakage of water over a period of time

•Electrical damage to electrical devices

•Employee dishonesty

•Wear and tear; rust, corrosion, fungus, decay, deterioration, hidden or latent defect smog; settling, cracking, shrinking, or expansion; nesting, infestation or release of secretions by insects, birds, rodents or animals

•Damage to building interiors by rain, snow, sleet, ice, sand, or dust unless the roof or walls are first damaged – except damage by thawing of snow, ice or sleet

•Mechanical breakdown

•Theft of building materials and supplies not yet attached to buildings

•Pollution

•Earthquake or earth movement

So which insurance is the better choice?

If you are paying a mortgage, it is unlikely that you will have a choice. Most lenders require that you carry a comprehensive policy to protect their investment.

For all others, the type of insurance to purchase should be based on your needs depending on the type of property you have and your. The advantage of an all-risk policy is that it covers you in the event you have a loss that you did not predict. Even though all-risk policies may cost you  a little more, in a world where freak accidents happen, the broader your insurance coverage protection, the better off you will probably be. Just be sure to read the fine print so that you are clear about the stated exclusions.

Austin Insurance Group | Local Texas Auto Insurance Agent | (512)339-2901 | All Risk Insurance vs. Named Peril Policies