What is a 'named peril' policy?

A 'named peril' policy is one that provides coverage exclusively for the specific perils, or risks, that are explicitly listed in the policy document. This means that if a loss occurs due to a peril not mentioned in the policy, the insurance will not cover that loss. This type of insurance is distinct from an 'open peril' policy, which covers all risks except those that are specifically excluded.

Named peril policies can be advantageous for individuals who want to maintain lower premiums or have specific risks that they want to insure against, as they allow policyholders to clearly understand what is and is not covered. This clarity helps in budgeting and managing expectations regarding insurance protection. Conversely, while other types of policies might cover a wider range of risks, they typically come at a higher premium cost and provide broader, more robust protection.