When considering your options for home insurance, it is essential to understand what each type of policy includes and excludes. Named Perils coverage, also known as ‘specified perils’, allows you the flexibility to pick and choose which perils or risks you are willing to pay for. Canada experienced 29 weather-related disasters in 2023 alone, one of the highest counts in recent history. As the Canadian climate becomes more unpredictable, it is essential to understand the coverage available to you. Let’s take a closer look at Named Perils coverage and examine its advantages and disadvantages.
What is Named Perils coverage?
This type of policy only provides coverage on losses to your property from hazards or events named on the policy. Canada is warming at twice the global average, increasing the risk of floods, wildfires, and storms.
A peril is an expected event that can cause damage or loss. However, not every Named Perils policy covers the same list of perils. Here are some common ones that you will find in almost every home insurance policy:
- Fire, lightning, and explosions
- Hail
- Windstorms
- Vandalism or malicious acts
- Smoke
- The impact from a vehicle or aircraft
- Civil disturbances or riots
- Falling objects
While they do cover many of the “big” perils, most named perils policies don’t offer protection against earthquakes or floods. Depending on where you live, not having flood coverage may be a costly mistake should you ever need it. If you don’t live in an earthquake or flooding-prone area, you may elect to get a Named Perils insurance policy and only declare coverage against fire, theft, or hail.
About 10% of Canadian homes are at high risk of flooding, with limited or no insurance options.
Advantages of Named Perils
- A Named Perils insurance policy only provides coverage on losses to your property and/or possessions from events or risks named on your policy.
- Theft, fire, and vandalism are events that may be declared on a Named Perils insurance policy.
- This coverage may be a less expensive alternative to ‘all-risks’ comprehensive coverage or broad form policies, which are policies that tend to offer coverage to most perils.
- Ideal for vacation homes, cottages, or rental properties, where the full spectrum of coverage may not be needed.
- Many insurers allow you to add endorsements for specific risks (like sewer backup or overland water) while keeping the base premium lower.
Disadvantages of Named Perils
- In general, Named Perils policy coverage is too narrow for most homeowners. Insurance providers typically recommend this type of policy in specific circumstances, such as a house undergoing major renovations or a vacation home, like a cottage in a remote area.
- With Named Perils, the burden of proof is on you to support a claim for damages from a peril not listed on the policy. The homeowner must prove that a covered peril caused the loss, whereas comprehensive policies often cover all losses unless they are explicitly excluded.
- The narrow coverage carries a substantial risk of suffering an uninsured loss, which can wipe out years of premium savings.
- Limited coverage for modern risks – gradual damages (like mould or rot), as well as cyber risks affecting smart home devices, are also not covered.
With increasing concerns over climate change, you may not be sure if you are willing to gamble with your coverage. Extreme weather resulting from climate change is causing millions of dollars worth of insurable damage. Roughly 30% of Canadian homeowners don’t fully understand their home insurance coverage, leaving them vulnerable to exclusions. With the unpredictability of weather over the past decade, ensuring that you have coverage against extreme weather may be the wise choice in the long run.
Is the Price Right?
Due to the risk of loss, many insurers recommend considering broad form or even comprehensive coverage to save money. The price difference between Named Perils policies and comprehensive ones isn’t always that large. As a homeowner, you may find that peace of mind is worth the extra cost. A Named Perils policy might save homeowners anywhere from 10% to 20% compared to comprehensive policies, depending on the insurer.
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