What is the difference between a "named perils" policy and an "all risks" policy?

The distinction between a "named perils" policy and an "all risks" policy revolves around the scope of coverage provided by each type of insurance. A named perils policy specifically lists the risks that are covered. This means that if a peril is not explicitly mentioned in the policy, it is not covered. This type of policy offers more limited protection, as it only accounts for the risks that are named within the document.

In contrast, an all risks policy provides broader coverage. Typically, it covers all risks of loss or damage except for those explicitly excluded by the policy. This means that the insured party is covered for many potential incidents that are not specifically listed as risks, giving them a wider safety net.

The reasoning behind this structure influences the cost of insurance. Named perils policies are often less expensive due to their limited coverage compared to all risks policies, which tend to provide more comprehensive protection, resulting in higher premiums. Understanding these fundamental differences helps insured parties choose the right type of coverage based on their individual risk tolerance and needs.