Named Perils Insurance Policy: What It Is and How It Works

What is a named perils policy?

A named perils insurance policy covers losses to property only from the specific hazards listed in the policy. If a peril is not named, damage from that cause is not covered. Named perils policies are often less expensive than broader coverage because they limit the insurer’s exposure.

How it works — simple example

• A homeowner who wants protection against fire, theft, and hail can buy a named perils policy that lists only those perils.
• If damage occurs from a listed peril (e.g., hail), the homeowner can file a claim.
• If damage results from an unlisted cause (e.g., flood, if flood is not named), the claim will be denied.

Named perils vs. all-risks (open perils)

• Named perils: Covers only the perils explicitly listed. The burden of proof is on the insured to show the loss resulted from a named peril.
• All-risks (open perils): Covers all causes of loss except those specifically excluded. To deny a claim under an all-risks policy, the insurer typically points to an exclusion that applies.

Common exclusions and special considerations

All-risks policies frequently exclude certain events that may require separate coverage or endorsements:
– Earthquake, flood, and war
– Government seizure or destruction
– Wear and tear, deterioration, infestation
– Pollution, nuclear hazards, market loss

Options to extend coverage:
– Riders or floaters: Pay an additional premium to add specific perils excluded by the base policy.
– Separate policies: Flood and earthquake coverage are commonly sold separately and may be required in certain areas.

Pros and cons

Pros of named perils
– Lower premium cost
– Predictable coverage for listed risks
– Simpler underwriting for common exposures

Cons of named perils
– No protection for unlisted perils unless added
– Insured bears the burden of proving the cause of loss
– Potential gaps if homeowners assume broader coverage than they have

When to choose named perils

• You want lower premiums and only need protection for specific, likely hazards.
• You live in an area without exposure to excluded perils (e.g., not in a flood or earthquake zone).
• You plan to buy separate policies or endorsements for high-risk exposures.

Practical checklist before buying

• Read the policy to see which perils are named and which are excluded.
• Verify whether flood and earthquake are included or must be purchased separately.
• Ask about available riders or floaters for perils you’re concerned about.
• Compare total cost: base premium plus any endorsements vs. an all-risks policy.
• Understand the proof requirements for a claim under a named perils contract.

Key takeaways

• Named perils policies cover only the causes of loss specifically listed in the contract.
• They are typically less expensive but create coverage gaps for unlisted perils.
• All-risks policies cover everything except named exclusions; review exclusions carefully.
• Consider endorsements or separate policies for high-risk perils such as flood and earthquake.