Named Perils Policy vs. Open Perils Policy
  • Post last modified:October 5, 2020
  • Post category:Homeowners Insurance

Trying to decipher the complicated terms used in the insurance industry is essentially like trying to learn a brand-new language. Thumbing through a glossary of insurance-related words, you’ll stumble across terms such as annuitant and retrocession that will leave most scratching their heads in confusion. Thank goodness for insurance agents that can translate these confusing words into meaningful language.

A prime example of these terms is Named Peril Policies and Open Peril Policies. These are two very distinct types of policies that apply to homeowners and provide two very different types of coverages. The good news is you don’t have to be an insurance agent to understand the difference between these two types of policies despite their complicated sounding names. Here is a brief summary of these two types of policies that every homeowner should make an effort to understand.

What is a Peril?

Many events can classify as a peril. Examples of perils include lightning, fire, theft, and vandalism. There are also perils you should be aware of that are typically not covered under a standard homeowner’s insurance policy. Examples of these perils include flooding and earthquakes and require a more specialized coverage from a private insurer to get protection.

Named Peril Policy

Named peril policies are a class coverages better designed to protect the insured against very expressly stated perils. The named-peril policy has a few advantages over its open counterpart, and there are also a few disadvantages as well. One advantage that it carries over an open peril policy is a reduced price due to the specificity of the coverage. Because it is a targeted policy aimed at protecting against a very specific peril, it does provide less coverage than an open peril policy. It requires any claims to be substantiated as caused by the peril named in the policy.

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Open Peril Policy

Conversely and open peril policy is more expensive, but offers a much wider breadth of coverage. Typically, unless a peril is specifically excluded from the policy, it will cover damages that are caused to your home. Another benefit of an open peril policy is the responsibility of the burden of proof falls on the insurance company as opposed to lying with the insured party. In layman’s terms, this means that for the insurance company to deny a claim, they must prove that damage was caused by a peril that is explicitly excluded in the policy.

Which Type of Homeowners Insurance to Choose

When trying to determine which type of homeowner’s insurance is best for your home, many different factors must be considered. In general, for most homeowners and open peril policy is the way to go, but you should always speak with your insurance agent to talk about options and whether you require a named-peril policy for your home. One option is available to homeowners is to combine the two, which will deliver the best possible coverage against a wide range of scenarios.