The events that a homeowners insurance policy specifies as covered are called named perils. If any of these events befall a policyholder's home, the insurer will extend benefits to take care of the damages. The most common named perils in house insurance policies include lightning or fire, explosions, windstorms, theft, vehicle damage, and others. Depending on the type of plan the homeowner has, protection may be limited only to the specific event. These kinds of policies are called named peril coverage.
The aforementioned HO-2 policy is an example of named peril protection, meaning the plan only reimburses damage from the specific events listed and nothing else. For example, with an HO-2 offering, the damage resulting from an earthquake would not be taken care of because the event is not explicitly listed in the agreement.
This is usually cheaper than other options because it limits the insurer's risk.
By contrast, all-risks coverage is the opposite. Instead of looking after only the specific aspects named in the plan, all-risks house insurance looks after all possible damage and injuries. The exhaustive protection of an all-risks policy makes it much more expensive than a named peril plan, but it provides the homeowner with more peace of mind. Many insurers also offer special coverage, which is a hybrid of named peril and all risks coverage. With special coverage, all events are included except those specifically excluded by the agreement.
Benefits of Supplementing
Many homeowners use named peril coverage to supplement special home insurance coverage. Policyholders purchase this type of plan for whatever events the special coverage excludes. For instance, most house insurance policies exclude flood damage, which leaves homeowners in flood-prone areas at risk. To fill this gap, homeowners can purchase an option that just looks after flooding.
One of the most popular types of house insurance policies in the US is called the HO-2 policy, or the broad form. The HO-2 plan covers 16 named perils, including:
- Lightning or fire
- Hail or windstorm
- Damage caused by aircraft
- Riots or civil disturbances
- Smoke damage
- Damage caused by vehicles
- Falling objects
- Volcanic eruption
- Damage from the weight of snow, ice, or sleet
- Water damage from plumbing, heating, or air conditioning overflow
- Water heater cracking, tearing, and burning
- Damage from electrical current
- Pipe freezing