In the insurance world, there are numerous terms that sound funny to the inexperienced ear. One such term is named perils. So let’s take a look at what it is and what it means for you.
Defining named perils
Named perils is a term specifically used in property insurance. It refers to policies that will only cover loss related to perils that are explicitly mentioned in the contract between the insurance company and the owner or renter who has taken out the policy. The opposite of named perils coverage is all risks coverage, in which all loss is covered unless listed in the contract as being excluded.
Tiers of named peril coverage
Named peril coverage is generally divided into three tiers—HO-1, HO-2, and HO-3. HO-1 is the lowest tier, covering the least amount of named perils. HO-2 is considered the lowest amount of coverage that is safe to have. While the named perils included in an HO-2 policy may vary from company to company, the standard 16 to include are:
1. Lightning or Fire
2. Hail or Windstorm
3. Damage caused by an aircraft
4. Explosions
5. Riots or Civil disturbances
6. Smoke damage
7. Damage caused by vehicles
8. Theft
9. Vandalism
10. Falling objects
11. Volcanic eruption
12. Damage from the weight of snow, ice, or sleet
13. Water damage from plumbing, heating, or air conditioning overflow
14. Water heater cracking, tearing, and burning
15. Damage from electrical current
16. Pipe freezing
Selecting the right policy
If you are insuring a property you own, you may not have a choice in which tier of coverage you select; mortgage providers often stipulate that the borrower must have HO-3 level coverage. If you are renting or own your property, you will have greater flexibility. HO-1 is only recommended for properties that are considered expendable. HO-2 is ideal if your home is located in an area where the 16 named perils are cause for worry. However, if you want maximum protection or are in an area with high risk, and HO-3 plan is best.
To get the right policy for your property, speak with your insurance broker.
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