Finance term
Peril
Also known as: covered peril, named peril, open peril
Definition
A peril is a specific cause of loss covered — or excluded — by an insurance policy. Named-peril policies cover only the perils explicitly listed (fire, theft, windstorm). Open-peril (all-risk) policies cover every cause of loss except those specifically excluded.
Detailed explanation
The distinction between named-peril and open-peril (also called 'all-risk' or 'special-form') coverage is one of the most consequential choices in property insurance. Named-peril policies (HO-1, HO-2 forms) list the specific events that trigger coverage; anything not listed is excluded. Open-peril policies (HO-3, HO-5 forms) flip the default — all losses are covered unless the policy contains a specific exclusion.
Common perils covered on standard homeowners policies include: fire and smoke, windstorm and hail, lightning, theft, vandalism, and accidental discharge of water. Common exclusions — perils specifically carved out — include: flood, earthquake, normal wear and tear, and intentional acts. Flood and earthquake each require separate policies or endorsements.
For commercial property, the Insurance Services Office (ISO) publishes the Building and Personal Property Coverage Form (BPP), which is the industry standard; most commercial open-peril policies use or reference this form. Understanding the distinction between covered perils and exclusions is essential to avoiding coverage gaps at claim time.
◈ Worked example
- A named-peril HO-2 policy covers fire but not water backup from a sewer — the homeowner must add an endorsement to cover backup.
- An open-peril commercial property policy covers a mysterious disappearance of inventory because the cause of loss doesn't have to be named — but theft by an employee may still be excluded.
Common questions
The most-asked questions about Peril — answered straightforwardly.
Is flood a covered peril in standard homeowners insurance? +
No. Flooding caused by storm surge, rising rivers, or overland water is almost universally excluded from standard homeowners policies. Separate flood insurance — through the NFIP or private carriers — is required.
What is an all-risk policy? +
'All-risk' is a marketing term for open-peril coverage — it does not mean literally every risk is covered. The policy still contains specific exclusions; always read them carefully.
Further reading
This glossary entry is educational content. ClearValue Lending is a business & personal financing platform — not a lender, broker, or financial advisor. Specific product terms vary by lender; verify with the lender or issuer before applying. See privacy policy.