If you're in the market for a Commercial Property Insurance policy (and why wouldn't you be? Your office and equipment aren't going to insure themselves!), chances are you're going to run across one of two phrases to describe the coverage:
- Named perils: covers damage caused by events explicitly named in the policy.
- Open or all perils (also called all risks): covers damage caused by all events except those explicitly excluded in the policy.
If you're like many small-business owners, you may see the phrase "all perils" and think your business is in the clear for any and every kind of property damage that comes its way. But unfortunately, all perils coverage has its limits because there's no such thing as an insurance policy that can cover everything. Let's take a closer look at what all perils policies are about and when they make the most sense for your business.
Oh, Come, All Ye Perils
All perils policies tend to be more comprehensive than named perils policies. Whereas a named perils policy spells out a handful of events it can cover (e.g., windstorms, theft, vandalism, and fires), an all perils policy spells out the events that are excluded from coverage. So long as the insurance company can't prove that the damage is excluded, the all perils coverage can apply.
So what are common exclusions in an all perils policy? Don't be surprised if you can't make a claim for property damage caused by:
- Acts of war.
- Seepage and sewer backups.
- Governmental seizure or destruction of property.
- Boiler explosions.
- Power failure.
- Electrical damage to electrical devices.
- Employee dishonesty.
- Wear and tear.
- Rust and corrosion.
- Fungus and mold.
- Infestations (animal or insect).
- Mechanical breakdowns.
- Theft from a building under construction.
- Intentional loss.
The good news: if you're worried about some of these events, like floods and earthquakes, you can always purchase Flood or Earthquake Insurance as a rider. Learn more about these policies in "Spring Flood Season's Here. Is Your Business Ready?" and "So You Want to Know about Earthquake Insurance."
Go All In with All Risk or Opt for Named Perils?
Now that you know a little more about what you can expect from an open perils policy, the question remains: which type of Property Insurance policy is right for your business? As with so many decisions, money may be the deciding factor, but weigh the cost against how much coverage you get.
Keep in mind that…
- Named perils policies tend to be less expensive, but they cover fewer events.
- Open perils policies may be more expensive, but they offer greater coverage.
Also know that with a named perils policy, it's up to you – the insured – to prove that the named peril caused the damage. For all perils policies, the burden of proof belongs to the insurance provider – it would have to prove that an event was excluded to deny coverage.
As always, your insurance agent is the best resource for your insurance questions. They can help you decide if broader coverage makes sense given your location and physical assets.