Sadly, during our time defending property owners, we’ve met numerous homeowners who after having their insurance policy for some time, suffer damage, and file a claim to get the money for repairs, only to realize their insurance company won't pay out their claim because the policy does not cover their damaged or destroyed property. How is that possible?
Picture this: You live in an area in Texas where storms and flooding are very frequent. When you're shopping for homeowners insurance in Texas, you ask for a policy that covers these specific potential harms to your property.
In most cases, your agent will issue a policy, and you might peruse the first couple of pages to look for major keywords that fit what you asked for.
Most people never look at their policy again until they need to file for damages. Unfortunately, if your policy doesn't cover those damages, then it's too late. That's why it's so important that every property owner thoroughly read and understand their property insurance policy's fine print.
In this blog, we're going to cover an important, but very little talked about aspect of property insurance policies — open peril and named peril policies. This is one of the biggest factors in determining what's covered in your property insurance policy. So, we're taking some time to explain the differences between the two, and give you all the information you need to determine which option is best for you:
Open Peril vs. Named Peril Insurance Policies
The biggest difference between open and named peril insurance policies is what is covered in the policy.
Open peril insurance policies, also known as comprehensive coverage or HO-B policies, are built to offer broad coverage over a range of peril types unless there is a clause or provision within the policy to exclude a certain peril.
Named peril policies, also known as specific perils coverage or HO-A policies, only cover what is specifically named in the policy.
But what is the purpose of having two different types of insurance policies, and what are the pros and cons of each? Let's take a look at open peril insurance policies first.
Open Peril Insurance Policies — The Pros & Cons
Open peril insurance policies are fairly common for homeowner's insurance. In the standard homeowner's insurance policy, a number of different potential damages are covered, from fire to theft or vandalism. Most property owners prefer open peril insurance policies because they streamline the coverage process and can remove a lot of the stress of property ownership. Here's a quick look at the pros and cons of open peril insurance policies.
Pros
Increased, comprehensive coverage. In an open peril insurance policy, a number of potential damages are covered. This takes some of the work off of the property owner's plate, because they don't have to manage multiple named peril insurance policies, and they can feel confident knowing that their property is insured in the event of the most common damages.
The property owner carries minimal risk. Because open peril insurance offers comprehensive coverage, the property owner carries minimal risk. In most cases, property damage will be covered by the insurance policy, which means the property owner doesn't need to have an excessively large reserve of funds for potential repairs.
Cons
Open peril insurance is more expensive. When compared to named peril insurance, open peril is the more expensive option. This is because more comprehensive coverage is offered, but it's worth considering that if nothing happens, and the property doesn't encounter any damage, the property owner is out significantly more out-of-pocket costs than with a named peril insurance policy.
Exclusions do still apply. While open peril insurance is comprehensive, exclusions do still apply to most policies. For example, most open peril insurance policies do not include flood protection. That's why it's so important for property owners to read through their policies thoroughly.
Named Peril Insurance Policies — The Pros & Cons
Now that we have a clearer picture of the pros and cons of an open peril insurance policy, let's take a look at the pros and cons of a named insurance policy.
Pros
Specific coverage for specific situations. Named peril insurance policies are ideal for situations where a property owner knows a property should be protected from a specific hazard. For example, if a home is in a floodplain, the homeowner would be smart to take out a specific flood insurance policy.
Less costly. Since named insurance policies only cover a few specific types of hazards or damages, they are typically much less costly than more comprehensive open peril policies. The property owner pays less in overall premiums, but still has all the coverage they need for those specific hazards.
Cons
Not comprehensive. While a named peril insurance policy may offer great coverage for one type of damage, it won't offer a property owner any compensation for any other kind of damage. For example, say you had only flood insurance on a property, and your property was hit by a hailstorm. The insurance policy would only cover flood damage, and you would get nothing for the hail damage that happened to your home.
Property owner carries a great deal of risk. Since named peril insurance policies are inherently limited, the property owner carries significantly more risk than with an open peril insurance policy. Property owners with limited named peril policies should keep a significant reserve of cash for potential uncovered damages.
Understanding Property Insurance — Less Coverage = More Risk
In general, in any insurance policy, but especially in property insurance, the less coverage you purchase, the more risk you carry. So, for example, if a property owner were to choose only a named risk policy for floods and hail, then that property wouldn't be covered in the event of a fire or a windstorm.
On the other hand, with an open peril insurance policy, you're likely to pay more for the insurance, but your property will be more comprehensively covered in case anything happens to it.
As you might have gathered by this point in the article, both open and named peril insurance policies have distinct advantages and disadvantages. Which is why many property owners wonder if it's possible to combine open and named peril insurance policies.
Can You Combine Open and Named Peril Insurance Policies?
Yes, it's possible, and actually very common, to combine open and named peril insurance policies.
For example, let's say your standard open peril homeowner's insurance policy excludes flood damage. You could purchase a specific flood named peril insurance policy to ensure your home has that protection.
Property insurance policies, for homes, businesses, and even commercial properties can be confusing. Especially in areas prone to special perils like windstorms, floods, and hail, like Texas's fourteen coastal counties and parts of Harris County in Galveston, it's important to ensure that you're carrying all the necessary insurance to protect your property.
If you have questions about your insurance policy, or if you're concerned that your insurance provider isn't offering the appropriate coverage according to your policy, our experienced attorneys are here to help. Get in touch with The Lane Law Firm for more information about your property insurance claim.
