Do You Need All-Risk Insurance Policy?
All-Risk insurance may also be referred to as "Comprehensive" or "Open Perils"
What Is an All-Risk Insurance Policy?
An All-Risk insurance contract or open perils policy offers you coverage and protection from all "risks" or perils that could damage your home or contents and personal property unless the "risks" are excluded specifically in the policy wording.
This means that if you need to make a claim due to sudden or accidental damage, you would be covered on an All-Risk policy unless the insurance company proves the damage was caused or is the result of something that is specifically excluded, listed or limited in the wording.
What Options Are There Besides All-Risk Insurance?
There are many possible options when you buy coverage on your home, besides All-Risk such as:
- a Named Perils policy option
- a policy that will provide you with All-Risk on your building, and only named perils on your personal belongings or contents
What Is the Difference Between All-Risk Insurance and Named Perils Insurance?
All-Risk Insurance covers more things that could happen since it covers everything that isn't excluded. It is a more expensive type of policy.
Named Perils coverage only covers the risks that are specifically listed in the policy, so because it covers much less, it is a less expensive policy.
Named Perils: Only covers what is specifically mentioned as covered on the policy. Named Perils is a limited coverage policy and typically has about a dozen covered risks.
All-Risk: Provides you with coverage for everything that could happen unless it is specifically excluded.
Examples of All-Risk Policy Coverage vs. Named Perils
For example, if you have an All-Risk Policy on your building and contents, and a friend comes over to help you install a TV in your den, and your friend drops it and not only breaks the TV, but damages the floor, an All-Risk policy would cover the damages to the floor and the TV because it was sudden and accidental, as long as the wording of the All-Risk policy does not list the situation in the wording as something that is excluded.
With a named perils policy, if it says that you are only covered for fire, smoke damage, lightning and frozen pipes, then the situation discussed above would not be covered because it is not listed.
Another example would be If you have a sewer back up, and it is not specifically listed as covered, then you will be out of luck. Whereas on an All-Risk policy, it would be covered if it wasn't excluded in the exclusions section of the policy wording. Sewer back-up may be excluded, so this is why it is important to be aware of the exclusions, and see if you can add coverages that are important to you on an All-Risk policy through an endorsement. Endorsements are another way to add coverage to a policy.
Do You Need an All-Risk Policy?
You are the best person to determine if you need an All-Risk policy because it is really your choice as to what you want to be insured for.
The best way to make the decision is to determine what kind of position you would be in if something happened to your home and you found out you were not insured for it.
Always ask your insurance company or representative what the price difference is between an All-Risk policy and a Named Perils policy. Sometimes the price difference is only a few dollars a month.
It is important to always get both price options rather than assume the All-Risk is going to be too expensive.
If you want to save money, consider increasing your deductible to save money on your premium, and get better coverage.
Stats on Home Insurance Claims and Risks
According to the ISO stats on homeowner losses, and most recent data from the Insurance Information Institute, 5.9 percent of insured homes had claims.
The data from 2015 shows that out of all the home insurance claims, approximately 97 percent were property damage claims. These were the top risks that caused the claims:
- 23.8 percent came from fire and lightning
- 20.3 percent from wind and hail
- 45.1 percent from water damage and freezing
- 1.8 percent from theft
- 6.1 percent from "all other property damage" which includes vandalism and malicious mischief
What Things Are Typically Excluded in an All-Risk Policy?
Every insurance company may choose to include more coverage on their All-Risk policy by limiting exclusions as a value-added perk, however, to give you a general idea here are a few examples of items that are typically excluded on an All-Risk policy:
- Damage caused by rodents or pests
- Some types of Water Damage, for example, Sewer Back Up may be excluded. This is an important part of your insurance coverage to understand. Always ask what kinds of water damage are included or excluded in your policy.
- Earth movement
- Nuclear incidents
- Acts of terrorism
- Breakage of fragile items
- Mechanical breakdown
- Wear and tear
- Hidden or latent defects
- Gradual damage
These are just examples, there are many more items excluded or specifically mentioned on an All-Risk policy, it is important to ask your insurance company or representative exactly what they are because every insurance company is different and coverages vary.
An All-Risk insurance policy may cost you a little more, but because of all the different things it can cover, it is usually worth taking an all-risk policy whenever the choice is available to you.
It's a way better strategy to pay a little bit more on a deductible and have All-Risk coverage than to pay a few dollars less in insurance, and not have a claim covered at all.
You never know what can go wrong, or what kind of accident can happen, this policy will give you much better protection so you don't need to worry as much during a claim situation.