Do You Need an All-Risk Insurance Policy?

Man and woman in home wondering what kind of insurance they need
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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.

Alternatives to all-risk policies include named perils policies, which cover only those risks specifically listed on the policy, or a combination policy that provides all-risk coverage on your home but coverage only for named perils on your belongings.

How Coverages Differ

If a friend comes over to help you install a TV in your den and drops the TV, damaging both the TV and the floor, an all-risk policy would cover both the damage to both because it was sudden and accidental. A named perils policy that covers only fire, smoke damage, lightning and frozen pipes would not cover the damages to either the floor or the TV. A combination policy might cover the damage to the floor but not to the TV.

Not surprisingly, all-risk policies are more expensive than named peril policies. Specific prices can vary greatly depending on the insured, what is being insured, where you live, and many more factors. So, shop around with different insurance providers for specific quotes.

Deciding What You Need

If you have a mortgage on your property, the decision might not be entirely up to you. The lender holding the mortgage likely will require a certain level of coverage in order to protect its asset. How much coverage is required can vary greatly based on where you live. For example, flood insurance is likely to be required in floodplains, and the same goes for earthquake coverage in places like California.

If you do have a decision to make, the best thing to do 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. If price is a concern, you also can consider increasing your deductible to save money on your premium. 

Common Claims and Risks

According to Insurance Services Offices stats on homeowner losses, 5.3 percent of insured homes had claims in 2016, the most recent year for which there is data.

The data also shows that out of all the home insurance claims, more than 97 percent were property damage claims, broken down as such:

  • 33.1 percent from wind and hail
  • 29.5 percent from water damage and freezing
  • 26.8 percent came from fire and lightning
  • 5.7 percent from "all other property damage" which includes vandalism and malicious mischief
  • 1.9 percent from theft

Typical Exclusions in All-Risk Policies

Every insurance company may choose to include more coverage on their All-Risk policy by limiting exclusions as a value-added perk. In general, though, there are some common items and risks that are excluded from coverage:

  • Damage caused by rodents or pests
  • Some types of water damage including sewer backups  
  • Earth movement
  • Flood
  • Nuclear incidents
  • Acts of terrorism
  • Breakage of fragile items
  • Mechanical breakdown
  • Pollution
  • Wear and tear
  • Hidden or latent defects
  • Gradual damage