Types of Perils in Insurance: A Complete Guide for Indian Policyholders

You can’t always prevent perils like storms, fires, or accidents. But insurance turns uncertainty into security. By paying a small premium, you can protect yourself from a big financial loss when an unexpected event occurs. However, remember, not all perils are natural or accidental because some perils can happen because of people’s mistakes or negligence, like not maintaining your car or leaving the tap open which causes damage to your home. While insurance protects against many perils, it won’t cover losses caused by negligence.

So, what exactly are perils and what are the types of perils? Read on to get a hang of these important insurance concepts, so that when you buy an insurance policy, you know all about the essential terms. Bajaj General Insurance provides a range of policies to protect your assets so that you live stress-free.

What Are Perils in Insurance?

Perils in insurance mean the specific cause of loss or damage to your insured property. It is the reason why a loss has occurred, and when such an event or situation leads to a financial loss, the insurance company promises to protect you from that loss.

Examples of perils in insurance:

i)               If fire destroys your house, fire is a peril.

ii)             If your car is damaged due to a flood or cyclone, then flood or cyclone is a peril.

iii)           If your goods are being transported by sea, and they get stolen, theft is a peril.

When you purchase an insurance policy, your insurance company will have a list of perils. Some perils will be covered, some will not be covered. Therefore, it is very important to understand the terms and conditions in the insurance policy because if a peril is not covered by your policy, the insurance company will not pay for the loss.

For instance, if your home insurance covers fire but not earthquakes, and your house is damaged due to an earthquake, you cannot file a claim for the loss. Or if your car insurance covers accidents and theft but does not cover wear and tear, then you cannot get money for loss due to the ageing of your car.

Types of Perils in Insurance

The following are the types of perils in insurance:

1. Named Perils

Named perils are those which are specifically named in your policy document. A named perils policy will cover only those perils that the insurance company has listed.

So, if you suffer a loss because of these listed perils, the insurance company will pay for it. But if something happens due to a cause not mentioned in the policy, you will not be paid for the financial loss incurred. In short, known risks are covered, unlisted causes of loss are not covered.

Example: Suppose you purchase a home insurance policy that covers the following perils:

●        Fire

●        Lightning

●        Explosion

●        Theft

●        Storm

If your house catches fire, the insurer will compensate you for the damages. But if your house is damaged due to termites or mould, you will not be compensated as the loss due to such an event has not been listed in your policy.

If you need protection against certain common risks, named perils policy will provide you the necessary protection at less cost as compared to comprehensive policies. Following are some of the common perils that insurance policies cover:

2. All-Risk or Open Perils

An All-Risk Policy ( called Open Perils Policy) covers all causes of loss, except the ones that are specifically mentioned in the policy documents as exclusions. These policies are broader and more comprehensive.

Example:

Imagine you buy a comprehensive car insurance policy. It covers perils such as

●        Accidents

●        Fire

●        Theft

●        Flood

●        Vandalism

●        Natural disasters

However, your insurer mentions certain exclusions, such as: lack of maintenance, drunk driving, use of car for racing.

Now, if you drink and drive and collide with another car and damage the bumper of your car, you will not be compensated as loss is due to an exclusion mentioned specifically in the policy document.

All-risk policies are more expensive than named peril policies, but they provide complete protection.

3. Excluded Perils

Excluded perils are those events or situations that your insurance policy does not cover at all. These perils are excluded because they are either too risky like war or terrorism, or are common and preventable like regular maintenance of home or car. Also, if a loss is an intentional damage, it won’t be covered.

Some examples of excluded perils are: war, terrorism, nuclear accidents, wear and tear, intentional damage, etc.

To cover these perils, you can purchase a special add-on cover.

Example: To protect your house from earthquakes, you can purchase an earthquake add-on cover.

The difference between the types of perils is:

How to Choose the Right Insurance Policy to Cover Perils in Insurance

Buying an insurance policy is essential to protect your assets from damage or loss. To select the right policy, first understand the risks you face so that you can ensure that these risks are covered. For homes or cars, a comprehensive or all-risk policy is better for complete protection.

Next, check the exclusions. If you need coverage for some specific exclusions, ask your insurer about add-on covers and the premium needed to pay. Choose a sum insured that is neither too low, nor too high but offers adequate protection.

Before finalising, compare and check policies for multiple insurers so that you can get the best coverage for your money. After you purchase the policy, renew it on the specified date so that you stay covered.

Conclusion

Understanding the different types of perils in insurance is important to stay protected and stay covered. Bajaj General Insurance provides a wide range of policies, from home and motor to commercial and marine policies. You can customise the coverage and choose the perils you need. The right peril protection today can help you recover from tomorrow’s setbacks.

FAQs

Q1. What is a peril in insurance?

A peril is the reason why a loss or damage happens to your insured property.

Q2. What is the difference between named perils and all-risk perils?

Named perils covers only the risks specifically mentioned in your policy. All-risk perils covers everything other than the exclusions.

Q3. Are there perils that insurance does not cover?

Yes, exclusions like war, terrorism, nuclear accidents, wear and tear, or intentional damage are not covered.

Q4. Can I get extra protection for excluded perils?

Yes, insurers often offer add-on covers. For example, you can buy an earthquake add-on for your home insurance.

Q5. Which policy is better for full protection: named peril or all-risk?

All-risk policies provide broader protection but are more expensive. Named peril policies are cheaper but cover only specific risks.

*Standard T&C apply

**Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

***Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.