Which is Better Homeowners Insurance: All Risk or Named Peril?


Sometimes things are open to interpretation, and reading the wrong meaning into something can cost you bunches. For example, if you have an all risk homeowner’s insurance policy, you might assume the word “all” implies that everything is covered. You would be wrong.

Essentially, issuers of homeowner’s insurance write two kinds of policies: named peril and all risk(also called open peril by some insurers). Here’s how they differ.

Named risk homeowner’s insurance only covers what is specifically noted in your policy. If it doesn’t say you’re covered for vandalism damages or backed up sewers, you aren’t. 

All risk or open peril homeowner’s insurance covers everything EXCEPT what is specifically excluded on your policy.

Flood insurance and earthquake insurance are common examples of named peril policies.  Those two natural disasters are typically excluded on most open peril policies, although they can be purchased as add-ons (or riders) for an extra fee.

So which homeowner’s insurance policy is the better choice? If you’re paying a mortgage, you really won’t have any choice but to at least carry open peril. Your lender is going to require you to carry a comprehensive policy to protect its investment. But depending on where you live, you’d probably be wise to add additional coverage for the natural disasters most likely to afflict you. By the way, flood damage is another one of those industry jargon terms you might misinterpret and wrongly assume that, since you live in a desert, you don’t need.  Since most standard open peril policies specifically exclude flood claims, you could be left holding the bag for any damage done by surface water that builds up after heavy rains, underwater springs, groundwater, burst water pipes, overflowing toilets, and wind or wave-driven water. 

Some other terms that may be open to interpretation and which you should clarify are: falling objects, earth movement and animal damage.  A falling object might include a meteor or airplane flotsam, or it might not. Earth movement probably doesn’t include damage caused by landslides, even if they result from an earthquake and you have that kind of coverage. Animal damage coverage may mean you’re covered if stampeding cattle or rampaging bears wreak havoc on your property, but probably won’t extend to the dog chewing up the drywall.

In a world where freak accidents happen and people are inclined to sue rather than forgive, the broader your homeowner’s insurance coverage, the better off you’ll be. Just be sure to read the fine print, ask lots of questions and get clarification in writing.

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