What is the type of policy that provides coverage only for those perils listed in the policy?

Basic Form and Broad Form

The named perils insurance policy is part of the insuring agreement of the property and is between a homeowner and the insurer. It can be chosen in its basic or broad form.

1. Basic form

The basic form of the policy will include coverage for the following unexpected situations that can cause harmful effects on your home – fire, windstorm, hail, lightning, explosions, smoke, collision, vandalism, and rioting. The policy can be chosen if homeowners seek out a less expensive option or if they think those are the only situations they will need coverage for.

2.  Broad form

The broad form of the named perils insurance policy includes an additional six areas of coverage on top of the basic form. Since there are 15 areas of coverage, it includes most of the more common forms of property damage. The six additional areas include burglary, fallen objects, ice or snow, frozen plumbing, accidental water damage, and electricity.

If neither of the above home insurance coverage options suffices for the policyholder, their other option as a homeowner will be the all-risk coverage, otherwise known as an open perils policy. The policy will provide even more coverage for the policyholder, as it is based on a form of coverage that includes all losses unless specifically excluded from the list. The exclusions could include situations such as earthquakes, floods, or war. Homeowners need to note that although it is labeled as all-risk coverage, it will not necessarily cover all risks.

Homeowners must be advised that not all kinds of property can be included in such home insurance policies, e.g., aircraft or vehicles. The exclusions can apply for several reasons, including that there may be other kinds of coverage offered for the excluded items. To explain further, the exclusions are put in place to avoid duplication of coverage and ensure that consumers attain the best kind of insurance for certain situations.

Importance of the Named Perils Insurance Policy

Homeowners need to understand the named perils insurance policy because they must acknowledge and understand the different forms and decide which form is best given their individual circumstances. Their situation can vary depending on factors, such as their place of residence or their financial means.

It is also important to understand the exclusions of the policy so that the insured can make sure to acquire the proper insurance for their other properties and objects. Overall, the policy is important to society and all homeowners because of the coverage it provides for certain situations.

Practical Example

As a new homeowner, you decide to look into the named perils insurance policy. Given your financial means and the fact that the location of your new home does not often deal with the scenarios included in the broad form, such as ice, snow, or water damage, you decide to purchase the basic form of the named perils insurance policy. The following are three possible scenarios that can take place:

• Vandalism takes place on the outside of your home. Thankfully, vandalism falls under the category of basic form coverage, and you can use your named perils homeowner insurance to fix the vandalism.
• A burglary takes place inside your home while you’re away. Unfortunately, since you’ve chosen the basic form, your named perils insurance will not cover the replacement of what was stolen in your home. If you had chosen the broad form of coverage, it would have been covered under your named perils insurance.
• An earthquake takes place near your home. Unfortunately, with the damages to your home, the named perils insurance policy would not cover the negative effects the earthquake had on your home.

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A named perils insurance policy is a type of home insurance policy where you are covered only for the losses specifically listed in your policy. For most standard home insurance policies, named perils coverage applies only to your personal property, while your home's structure has broader protection under open perils coverage.

Keep reading to learn how a named perils policy works and how it compares to an open perils policy.

What Is a Named Perils Policy?

A named perils policy is a home insurance policy that covers only the losses specifically listed in your policy. Any cause for losses not listed in your policy would not be covered by your insurance company. You can find more information about what's covered and what's not in the declarations page in your policy.

Below are the 16 named perils that are commonly referenced in a named perils policy:

Named perils policy example

Let's say your named perils coverage only lists fire damage as a covered loss but not falling objects. A fire burning down your home would be a covered claim, but a tree branch falling on your roof would not.

What Does a Named Perils Policy Cover?

A named perils home insurance policy commonly references two different types of coverage: dwelling and personal property. Dwelling coverage refers to the actual structure you live in, while personal property coverage includes your home's contents (e.g., clothes and furniture). Your coverage will depend on the type of homeowners insurance policy you choose.

A named peril policy covers only the perils specifically listed in your home policy.

Here is a summary of what the different types of named perils policies cover. Note that HO-5 is an open peril policy and is not listed below but would cover all of the listed perils unless excluded in the policy.

HO-1 and HO-8 policies offer the most limited coverage, protecting your dwelling from only 10 out of 16 named perils. An HO-2 policy provides additional coverage, protecting you from all 16 named perils. Most carriers do not sell HO-1 and HO-2 policies.

An HO-3 policy is considered standard home insurance and is sold by virtually all home insurance companies. An HO-3 policy has named perils coverage on personal property only. Dwelling is covered under an open perils policy (more on that next). An HO-5 policy offers more comprehensive coverage, protecting your dwelling and personal property from all perils except those excluded in your policy.

Protect Your Home and Your Personal Belongings

Open Perils Policy vs. Named Perils Policy

A named peril policy provides coverage for the perils listed in your policy and ONLY those perils. For example, say your named peril home insurance policy covers you only against fires and windstorms. You would have coverage for wildfires and a strong gust of wind but not for damages from falling objects and hail.

An open-peril policy (also called all an risk policy) will cover all perils EXCEPT those that insurers specifically exclude in the policy. Specific perils commonly excluded in open-peril policies are damages from an earthquake, flood, nuclear hazard, and mold.

Which Policy Is Right For Me?

Most homeowners will have a mixture of named perils and open perils coverage. HO-3 policies, the most commonly purchased home insurance policy according to the National Association of Insurance Commissioners, provides you with open perils coverage on your dwelling and named perils coverage on your personal property.

HO-1 and HO-8 policies offer the most limited coverage, protecting your dwelling from only 10 out of 16 named perils.

Here is a summary of the available types of home insurance policies and their respective coverages:

HO-5 insurance is ideal if you want open perils coverage on both dwelling and personal property.

While rarely sold, HO-1 and HO-2 policies may be ideal if you're comfortable paying less for less extremely limited coverage.

If you own an older home, then you may only qualify for an HO-8 policy.

A covered peril refers to a peril that your insurance company will cover if you suffer damages or losses from that event.

The 16 named perils are fire or lightning; windstorm or hail; explosion; riots; damage from aircraft; damage from vehicles; smoke; vandalism; theft; falling objects; weight of ice, snow or sleet; overflow of water or steam; sudden warping of home systems; freezing of warp systems; sudden and accidental damage from power surges and volcanic eruptions.

A covered peril refers to a peril that your insurance company will cover if you suffer damages or losses from that event. For example, if fire is a covered peril, then your insurance company will approve a claim and reimburse you for your loss if your home burns down from a wildfire.

A named peril policy covers only the perils specifically listed in your home policy — if only fire damage is listed, then you will only be covered against fire damage. An open perils policy will cover all perils except those specifically excluded in your policy — if only earthquake damage is excluded, you are covered for all perils except earthquake damage.

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