Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is the main difference between "named perils" and "all risk" policies?

1. Named perils cover all risks

2. All risks exclude specific perils defined by the insurer

3. Named perils cover specific risks while all risks cover all direct losses not excluded

4. All risks cover specific perils while named perils do not

The correct answer is: Named perils cover specific risks while all risks cover all direct losses not excluded

The main distinction lies in the scope of coverage provided by each type of policy. "Named perils" policies specifically cover only the risks that are explicitly listed in the policy. This means that if a peril is not named, then it is not covered, regardless of how it may impact the insured property or interests. On the other hand, "all risks" policies, often referred to as "open perils" policies, provide coverage for all direct losses or damages unless a specific exclusion is mentioned within the policy. This offers broader protection because it not only covers the named perils but also includes any other risks that aren't specifically excluded. Understanding this difference is crucial for policyholders when evaluating their coverage needs. A named perils policy might seem more limited, while an all risks policy typically offers wider coverage, making it essential to review policy details and exclusions for clarity.