Insurance policy terminology can, at times, be perplexing. Case in point: what is a business insurance peril?
By definition, a peril is a serious and immediate danger. In an insurance contract, it’s a chance event that is unexpected and accidental. Think about the risks that cause loss and destruction, such as malicious acts and vandalism, lightning and wind damage, fire and explosions, or theft and robbery. These are all perils.
A business insurance policy may feature ‘named perils’ or ‘open perils’ coverage. With named perils, you are only covered for events specifically listed in the policy document. With open perils, you are covered for all losses except those specifically excluded in the policy. Therefore, it’s important to know if you have a named perils policy and, if so, what perils are listed in your policy.
Although a policy with open perils coverage may, in some cases, cost more, they offer protection from numerous events and losses that can be financially devastating.
Do I Need a Named Perils or Open Perils Policy?
It depends on your business’s overall risk exposure. Named perils policies are typically less expensive but offer less protection than an open perils policy. If you don’t face tremendous risk, then a named perils policy could be a sound choice.
On the other hand, your small business faces a wide array of risks – some that may not be on your radar. Without an open perils policy, you may not be insured for an incident that is not explicitly named in your policy. While more expensive overall, this may be the better business decision.
After all, disasters can strike quickly and unexpectedly. Even extreme weather events that you know are coming your way, like Hurricane Fiona hitting Atlantic Canada in September 2022 (on track to be the eighth-largest insured loss ever in Canada), the damage can significantly impact your community and commercial property.
Only about one-third of businesses are fully prepared to deal with an emergency or disaster. That makes adding business interruption coverage to your policy if it isn’t included, as it could be a literal lifeline in the immediate aftermath of an incident. Business interruption coverage is designed to pay for lost income, payroll, taxes, loans, and overhead costs and can help keep a small business afloat following an insured loss or peril.
What Is an Uninsured Peril?
Uninsured or uninsurable perils are events or situations your policy does not cover.
Examples of uninsured perils may be storm surges, overland floods, earthquakes, wildfires, landslides, and insect and rodent infestations.
The reason some insurance providers won’t cover specific kinds of perils in a standard policy is two-fold. First, some are too expensive to insure (some catastrophic disasters fall into this category). Second, if the perils are considered an intangible risk, a provider may be unable to price them adequately and offer coverage.
What If Your Property Suffers Loss or Damage for a Peril That Isn’t Listed in Your Policy?
Finding out your policy does not cover a loss you’ve incurred is not something any small business owner wants to contemplate. Still, there may be a time when your commercial property suffers loss or damage due to a peril that is not among the named perils policy. What then?
For example, suppose flood damage from a storm surge is not listed as a named peril or is expressly excluded from your policy. In that case, your insurance will probably deny your claim. Only the damage caused by the perils named in your policy will be covered. You will only be compensated for damages caused by named perils up to your policy limit.
What Are Commonly Insured Perils for Small Businesses?
Small businesses are commonly insured for the following types of perils:
- Windstorms and hail
- Theft
- Fire (including smoke, lightening, and explosions)
- Flooding, water damage, sewer backup, and water or ground contamination
- Falling objects or building collapse
- Vandalism, riots and civil disturbances, and malicious acts
- Vehicle impacts
- Accidental electrical current damage
- Damage from the weight of ice, snow, and sleet (this is Canada, eh?)
Reading your insurance policy can be confusing. It’s essential to understand what perils your policy covers and the ones it doesn’t. If your coverage is lacking, you can add a named peril to your policy to fill that gap.
That highlights why insurance brokers are so indispensable when making these decisions. Your broker can guide you on mitigating risks and getting the coverage you need to protect your assets and finances.
Contact Zensurance today to review your policy and ensure you have the right amount of coverage for your business.
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