June 21, 2024
What Is a homeowners insurance peril and how does it work?

Types of home insurance perils

Simply put, home insurance offers financial protection for unforeseen events. In insurance-speak, these unforeseen, damaging events are called perils. If and when a peril occurs and causes damage to your property, you may file a claim with your home insurance provider to help cover the repairs. A standard homeowners insurance policy lists the following 16 events as named policy perils:

 

Fire or lightning

Vandalism or malicious mischief

Theft

Riots

Smoke and ash

Volcanic eruptions

Falling objects

Power surges

Damage caused by vehicles

Damage caused by aircraft

Weight of snow, ice or sleet

Hail or windstorms

Explosions

Tearing or cracking of a hot water, air conditioning or fire sprinkler system

Freezing of a heating, plumbing, fire sprinkler, or air conditioning system or household appliance

Accidental water overflow or discharge from a heating, plumbing, fire sprinkler, or air conditioning system or household appliance

How policy types cover perils

Different types of home insurance policies cover perils in different ways, depending on how coverage is applied. Your home insurance policy type will determine whether or not your dwelling and personal property are covered on a named or open peril basis.

 

Generally, perils are covered as:

 

HO-2: Named perils for dwelling coverage and personal property coverage

HO-3: Open perils for dwelling coverage and named perils for personal property coverage

HO-5: Open perils for dwelling coverage and personal property coverage

The policy you choose affects your cost of homeowners insurance since insurers set premiums based on the level of risk they assume. Speaking with your homeowners insurance agent can give you clarification on how your policy would respond to a covered claim or verify if you are adequately covered.

 

Named peril

A named perils policy covers losses that are specifically listed in the insurance policy paperwork. This means that you, as the policyholder, are responsible for proving to your insurer that a loss should be covered by your policy by demonstrating that a covered peril caused the damage you want your insurance provider to pay for.

 

Named peril coverage can apply to your dwelling and personal property coverage, depending on what policy form you have. The most common policy form, HO-3 policies, usually cover personal property losses on a named peril basis.

 

Open peril

Open peril home insurance — also called “all peril” or “all-risk” coverage — means that your property insurer covers any peril not specifically excluded in your policy. With these policy types, rather than you having to prove something should be covered, an insurance company has to prove that the loss is not covered. Open peril policies shift the burden of proof to the insurance company.

 

HO-3 home insurance policies cover your dwelling and other structures on your property under open perils coverage, and HO-5 policies cover both your home and personal property for open perils. However, the phrase “open peril” can be slightly misleading. Open peril policies don’t cover every single type of loss, and there are policy exclusions to be mindful of.

 

What are some commonly excluded perils?

Even if you have open peril coverage on your homeowners policy, there are some situations and events not covered. To be covered for certain events and circumstances, you may consider a policy endorsement or a separate supplemental policy. Perils typically excluded by your standard property insurance include:

 

Earthquakes

Floods

Sinkholes

Certain types of water damage

Wear and tear

Intentional damage

What are the differences between peril, risk and hazard?

A peril, risk and hazard are all related, but have different meanings when speaking about insurance.

 

A peril is the actual event that causes damage and loss

A risk is the likelihood of a peril happening.

A hazard increases the chances of the peril.

Still not sure how to differentiate between these terms? Imagine you have a flood in your basement. The flood itself is the peril. Hazards that can lead to this peril include living in a flood plain or having old pipes. So, having old pipes is a hazard that increases your risk of experiencing a covered peril (flooded basement).

 

Who is most affected by a home insurance peril?

If you are a homeowner, you will likely be the one most affected by a home insurance peril. After all, you are the one living on the property each day, and a sudden fire or break-in can disrupt you and your family’s daily lives.

 

Financially, your mortgage lender might also be indirectly at-risk by home insurance perils. Unrepaired damage to the structure may impact the property’s market value. For instance, if a windstorm blows through town and rips off a significant amount of roof shingles, a home’s curb appeal and value could take a hit.

 

Not all kinds of home insurance perils affect all homeowners. Hurricanes mostly occur on the southeast and east coasts, while wildfires are a common peril in western and southwestern states. Understanding the common perils in your area can help you choose appropriate coverage options. It’s also helpful to know how to read your home insurance policy. That way, you will be able to identify any coverage gaps and purchase additional coverage as needed.

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