What is Peril in Insurance?

What is Peril in Insurance? - Definition

Peril”** in Insurance refers to an event or hazard that causes loss or damage. Peril is a cause of loss cover by an Insurance Policy and anything that causes a loss is a Peril. Perils vary according to the Insurance Policy, which are specified in the Policy Wordings. Different assets face different risks and thus require specific perils to be covered. For example: A Fire Insurance Policy for Plant and Machinery requires cover for loss to assets due to the following Perils: Fire, Explosion, Implosion, Earthquake, Storm, Tempest, Flood, Inundation (STFI Cover), Lighting, Impact Damage etc. while a Policy for Stocks will require Fire Coverage as well as coverage for Theft, Burglary and Robbery which is provided by a Theft and Burglary Insurance Policy.

Coverage for Perils can also be added by using Add-On Covers which extend the Policy Coverage. The Insured might need to pay extra Premium for adding cover for additional Perils.

List of Common Perils in Insurance

Some Common Perils in Insurance are listed below:

1. Fire
2. Earthquake
3. Explosion/Implosion
4. Earthquake
5. Storm, Tempest, Flood, Inundation
6. Theft, Burglary
7. Land

What is a Covered Peril?

A Covered Peril is an event which is covered by the Insurance Policy. The Insurance Company will reimburse the Insured for any losses caused by a Covered Peril. For example, if the plant and machinery of a factory is damaged by a Fire, the Factory Insurance Policy will reimburse the losses. On the other hand, some perils are excluded by Insurance Policy. If a loss or damage happens because of an excluded Peril, such Claims are not reimbursed by the Insurance Policy. Some excluded Perils are Wars, Nuclear Hazards, Losses due to Ordinary Wear and Tear, Negligence, Willful Misconduct etc.

Named Perils vs All-Risk Insurance Policies

There are 2 types of Insurance Policies available with regards to Insurance: Named Perils and All-Risk Insurance Policies. Named Peril Policy: A Named Peril Policy lists all the Perils that will be covered by the Insurance Policy. The Insurance Policy will pay all the losses caused by Covered Perils. Any losses caused by Perils not listed in the Insurance Policy, are not covered. An important point to note in a Named Perils Insurance Policy, is that in case of an Insurance Claim, the burden to proof to prove that the Peril which caused the loss lies within the list of covered perils is on the Insured. All-Risk Insurance Policy: All-Risk Insurance Policies have a much wider scope of coverage. An All-Risk Insurance Policy lists all the Perils which are not covered by the Policy. Thus, an All-Risk Insurance Policy specifies the Perils which are excluded. Any loss caused by a Peril which is not specifically excluded under ab All-Risks Insurance Policy is deemed to be automatically covered by the Policy. An important point to note in an All-Risks Insurance Policy, is that in case of a Claim, the burden to proof to prove that the Peril which caused the loss lies within the list of exluded perils is on the Insurance Company. Thus, the narrower courage and the onus of proof on the Insured are significant drawbacks of a Named Perils Insurance vs All-Risks Insurance.

Conclusion

Peril is a fundamental concept of Insurance and it is extremely important for Policyholders to understand the same. The Policyholder should carefully understand the Perils covered by the Insurance Policy to understand what is covered and what is not covered. If you have any questions about any Insurance Policy or Insurance Claim, reach out to us via email at insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you.