6 Facts About Named Perils

When you buy homeowner's (or renters) insurance, you're buying financial protection against losses pertaining to your personal property, or, “your stuff”. This includes your home's structure, exterior buildings such as a detached garage or garden shed, and everything within the walls of your home such as appliances, furniture, electronics, clothing, artwork, jewelry, etc.

While each homeowner's policy is different and may be custom designed to fit the policyholder's specific needs, the average homeowner's policy provides similar protections.

Named Perils vs. Open Perils 

Standard homeowner's or renters insurance policies protect against what are called “perils,” which are bad things that can happen to your property that cause you to experience financial loss. An “open perils” policy, sometimes called a “named exclusion policy” or an all-risk or comprehensive policy, covers any bad thing that can happen to your personal property except those things specifically excluded in the policy. In a “named perils” policy, however, only the perils specifically listed within the policy are covered. Here are some key factors to understand about named perils:

1. Named perils can basically represent whatever specific protection you desire in your policy, as long as the insurer agrees and you're willing to pay the cost of the policy that they charge for that protection.
2. Most standard policies cover 16 named perils: 1. Fire/lightning damage, 2. Windstorm/hail damage, 3. Explosions, 4. Riot, 5. Being hit by aircraft, 6. Being hit by a vehicle 7. Smoke damage, 8. Vandalism, 9. Theft, 10. Falling objects, 11. Ice, snow or sleet damage, 12. Accidental overflow or discharge of steam or water, 13. Sudden, accidental cracking, burning, bulging or tearing, 14. Freezing, 15. Sudden, accidental damage caused by short-circuiting, 16. Volcanic eruption.
3. Most standard homeowner's policies do not cover for damage due to floods or earthquakes. Coverage for these perils must be obtained by taking out separate policies or having a special amendment to your standard coverage.
4. Compensation for a covered loss under your homeowner's policy will only be paid after subtracting the amount of your deductible.
5. A named perils policy only pays for losses caused by a peril specifically spelled out in the policy. If, for example, it doesn't say you're covered for sewer backup, you aren't. As the insured, the burden is on you to prove that your loss was caused by a named peril in your policy.
6. Because only specific perils are covered, these policies are typically less expensive than open perils coverage.

Does the National Flood Insurance Program Cover Basements?

With so much flooding plaguing our country of late, it's no wonder that more and more homeowners are learning about the importance of flood insurance. Since financial losses resulting from flooding are not covered by standard homeowners insurance policies, it's up to individual homeowners to seek out additional flood insurance coverage to add to their standard homeowner's policy. This can be done through the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA). Although flood insurance is purchased through the National Flood Insurance Program, it's actually sold through standard insurance company agents or brokers. Some select private insurance companies also offer flood insurance.

What's Covered by Flood Insurance?

Similar to the way standard homeowner's insurance is set up, flood insurance has a coverage component that provides protection for losses sustained to your structure and a separate component that provides protection for loss or damage to your personal possessions. Typically, there's a dollar amount cap of $250,000 for structural damage and $100,000 for your possessions. These two components are purchased separately and each has its own deductible amount. The NFIP recommends purchasing both components.

Flood coverage for your structure includes systems considered essential such as plumbing, electrical, water heaters, heat pumps and furnaces. You should also be covered for permanent carpeting laid over unfinished floors, other carpets over wood floors, window blinds and curtains. Wallboard, paneling, bookcases and cabinets permanently installed are also covered, but if only some cabinets are damaged only those will be replaced.

Personal Property Coverage

Personal possessions such as electronic gear, furniture and clothing are covered if you've purchased the personal possessions insurance component, but not if they're stored in the basement. Valuables such as artwork and furs are covered, but there's a $2,500 cap on these. Moveable appliances such as window-mount A/Cs, microwaves, washers, dryers, refrigerators and freezers (and the food in them) are considered personal possessions.

Basement Exclusions

Flood insurance doesn't cover improvements to your basement such as finished ceilings, floors or walls or any personal possessions found in the basement. Basements are defined as any area in your home that's below ground level. Another exclusion found in flood insurance is any damage caused by the movement of earth, even if that movement is caused by flooding. You should also note that a flood insurance policy typically has a 30-day waiting period before it goes into effect after purchase.

Is It Okay to Skip Flood Insurance?

For more than 50 years, the National Flood Insurance Program (NFIP), under the administration of FEMA (Federal Emergency Management Agency), has been working hard to reduce losses suffered due to flooding by home and business owners in the US. It does this by providing affordable flood insurance, by educating the public about the risks flooding poses and by encouraging communities to not only adopt but to enforce flood plain management regulations.

Who Needs Flood Insurance?

No home is completely risk-free from experiencing flood damage. According to FEMA, floods are the most common natural disaster in the country and flood damage is almost never covered in your standard homeowner's insurance policy. Furthermore, FEMA says that 98% of all counties in the U.S. have experienced flooding at one time or another. It's simple – if it rains where you live, you're at some risk of experiencing flooding.

This means you don't have to live in a coastal area or next to a river to be in danger of flooding. While it's true that homes located in low-risk flood zones are less likely to be affected by flooding, it's important to understand that “low risk” doesn't mean “no risk”.

Flood insurance is like other types of insurance in that you don't really want it until you need it, but if you wait until you need it to get it, you've waited too long! You should also be advised that, when you get federally-backed flood coverage through the NFIP, there's a 30-day waiting period before that coverage activates.

Skipping Flood Insurance

If you've been living without flood insurance, perhaps you're now thinking it may not be worth the risk. If you live in a high-risk flood zone you're probably already covered, since your mortgage company likely requires it. But consider this: more than 20% of the homes and businesses affected by flooding are in the low- or moderate-risk flood zones, and as little as one inch of flood water in your home or business can cause as much as $25,000 worth of damage. Insurance that costs just a couple or a few hundred dollars annually to maintain is well worth the protection you receive against these losses. We've seen a rash of floods all over the country in the past few years and, if history is an indicator, flooding incidents just look to be getting worse.