Named Perils vs. All-Risk: Choosing the Right Commercial Property Insurance
When it comes to deciding what type of commercial property insurance policy you want to purchase for your business, you’re going to have to make some decisions.
One of the more important choices you’re going to have to make is between replacement cost and actual cash value coverage; deciding whether you want a policy that pays for the full replacement cost of your property or its depreciated value.
The other main decision you need to make is choosing whether you want to buy named perils or all-risk insurance (also known as open perils). And while choosing between two different policy types doesn’t seem like much of a difficult choice, it’s important to remember that commercial property coverage needs can be very complex depending on the type of business you run and your geographical location.
That’s why it’s very important to clearly understand what each type of policy offers before deciding whether named perils or all-risk insurance is the right coverage type for you and your business.
Named Perils Insurance
When you purchase a named perils insurance policy for your business property, you’re agreeing that the insurance company is responsible only for losses related to perils that were specifically stipulated in the contract. This means that if your contract does not stipulate protection for your business in the case of vandalism or flooding, then you won’t be covered by the policy for damages resulting from either.
Obviously, putting together a named perils policy needs to involve serious discussions with an expert broker, who will be able to help you craft a policy that is going to protect you well. Essentially, the goal when putting together a name perils policy should be to include every logical peril you believe could endanger your property.
There are actually three different levels of named perils commercial property coverage that you can purchase:
- Basic will cover common perils such as vandalism, fire, lightning, wind damage, explosions, vehicle collision, and even volcanic activity.
- Broad coverage would include coverage for falling objects that damage the exterior of your property, frozen pipes, ice and snow damage, theft, and accidental water damage.
- Special coverage will usually cover all perils unless there are specific perils that are excluded in the contract.
No matter what type of policy you opt for, it’s important to note that you can add just about any peril, no matter how specific, to the policy via rider or endorsement if your insurer approves it.
So if you live in an area in which earthquakes are common, you are going to want to make sure that this will be one of the named perils listed on your policy. And conversely, if you live in a relatively safe neighborhood with a low crime rate, then you might want to exclude theft from the policy and take that calculated risk, meaning that if a theft does occur, you would have to pay for it out of pocket.
The most important part of the process is figuring out which perils need to be added to your policy and which you feel comfortable leaving out of your policy. Naturally, the perils you include in your policy and how many you name will play a large role in determining how much you are going to pay for coverage.
When you purchase an all-risk policy, you are covered for every single risk that the contract does not explicitly omit from coverage. So if you purchase all-risk insurance for your restaurant and there is nothing in your contract that says earthquakes are excluded from coverage, your restaurant will be covered in the event of an earthquake.
So the main difference is that named perils insurance names every peril that will be covered, while all-risks insurance names the risks that will not be covered. It, then, might be easier to think of all-risk insurance as “named exclusions” insurance.
When drafting the policy, the insurer is usually the one who is making the exclusions and some of the most common exclusions from all-risk insurance contracts include earthquake, war, government seizure or destruction, pollution, nuclear hazard, employee dishonesty, building ordinance or law, and market loss. If you believe that your business requires coverage for a peril that has been excluded from your all-risk policy, you can pay a rider (additional premium) in order to include coverage for that peril.
So essentially, you would have to buy an additional named perils policy to fill the hole in your all-risk policy that you believe deserves coverage.
Is One Better Than the Other?
After analyzing the main differences between the two types of commercial property insurance policies, it’s pretty clear that choosing between named perils and all-risk policy is going to depend mostly on the coverage needs of your business. The factors that should be taken into consideration when assessing your needs include your location, the type of business you run, the size of your business, the number of employees you have, and so on.
The obvious advantage of all-risk insurance is that it can provide coverage for events and losses that might be much harder to predict, while named perils insurance will only cover the events that you specifically sought coverage for when putting together the contract.
That means that all-risk insurance will usually be the more expensive option, but the peace of mind and protection from freak accidents that this coverage offers could be worth it for some businesses.
No matter what, it’s important to make sure that you are talking to an expert broker that is very familiar with your industry when putting together the right commercial property insurance for your business and deciding whether named perils or all-risks insurance will be the best option for your company.
If you have any questions about putting together commercial property coverage that fits your business’s specific needs, don’t hesitate to talk with one of our expert brokers today.