When you have renters insurance, your personal belongings are protected. That means if they’re stolen or destroyed, the renters insurance company will reimburse you for the loss. How much you’ll be reimbursed for is determined by your renters insurance policy. The policy will also explain whether you get paid for a given loss. To determine whether a loss is covered by your policy, check whether you have either an all-risk or named perils policy. They are exactly what they sound like.
With an all-risk policy, it pretty much doesn’t matter how the damage or loss occurred, because the renters insurance company will pay to replace the item regardless. Every renters insurance company has its own exceptions, however, which will be highlighted in a separate section in the policy usually called Exclusions.
The named perils policy pays only if the damage or loss was caused by a peril named in the policy. If it’s not specifically named there, you might not be able to get a reimbursement for the loss. Common named perils include fire, vandalism, and windstorms. As with all-risk policies, there will be exceptions to coverage.
Exceptions common to both frequently include floods, earth movements (think earthquakes and mudslides), and damage intentionally inflicted by the insured.
What is an all-risk policy?
The type of policy you have will determine whether your loss is eligible for reimbursement. With all-risk insurance, virtually any incident that causes you loss or damage will trigger a payout from the renter’s insurance company, except for anything specifically excluded. All-risk policies are also called open perils, comprehensive risk, or special perils policies.
For this reason, you’ll pay more for an all-risk policy than a named perils policy, since it’s far more likely than you’ll suffer a loss to your belongings for which the renters insurance company will be responsible.
There may be exclusions to your all-risk policy, as there will be with a named perils policy. For coverage of those exclusions, you may have to purchase a separate rider (also known as a floater or endorsement) that could cost extra.
What is a named perils policy?
While an all-risk policy covers everything unless excluded, a named perils policy only covers what’s included. These types of policies will have long sections describing everything for which you can get a loss reimbursed, often divided up into certain types of hazards like weather, damage caused by civil unrest, and highly specific hazards like pipes breaking for one reason but not another. Any peril not named in the policy is excluded, as are some specified perils. Named perils policies are also called covered perils policies.
Ironically, in being so comprehensive about all the myriad ways your stuff can be damaged and destroyed, these policies end up being less comprehensive than all-risk policies, and for that reason they cost less. Taking out a named perils policy may save you hundreds of dollars in premiums per year.
With a named perils policy, the insurance company may sometimes (but not often) dispute whether the loss occurred as a result of a covered peril. When this happens, it’s the burden of the policyholder to prove that the policy’s provisions for that peril do, in fact, apply.
Should I get an all-risk or a named perils policy?
The kind and amount of coverage you need entirely depends on your specific situation. If you live near the Florida coast, your coverage will look different from that of someone who lives in a landlocked state in Middle America. If you have less stuff, or you don’t want to insure everything, you can also purchase less coverage.
Take a look at your property and decide what you can replace out of pocket if it gets damaged or destroyed. Then determine whether a named perils policy provides you with coverage specific to the types of perils you uniquely encounter in your location. Maybe you’re the kind of person who lives near the woods, and you’re worried a rogue bear or a curious deer might burst through your door and smash your $1,000 TV off the walls. Crazier things have happened. With all-risk insurance, you can make sure the renters insurance company pays to replace the TV. Bear invasions are not usually covered in a named perils policy (although you might be able to get a rider for one if you ask nicely).
But the cost is also important to consider. As stated above, the named perils policy is considerably less expensive. That’s going to make a big difference when it’s time to file a claim, due to the deductible, the amount you have to pay on a claim out of pocket before the insurance company picks up the rest.
Say you have a $500 deductible, which is common; the renters insurance company is only obligated to pay the remaining $500 on that $1,000 TV. Add in the cost of the increased premiums under an all-risk policy, and you might not even break even.
One solution is to increase your deductible – $1,000 is also common – to get a lower premium. But make sure you research the policies closely before making a decision, reading carefully over the covered perils section in a named perils policy. If something you think you’ll need isn’t listed, an all-risk policy might be the better choice to protect your belongings from the financial burden of having to replace them.
You may not even realize that some types of loss aren’t covered. Misplace your wedding ring? Under an all-risk policy, it’s the burden of the renters insurance company to prove that losing such an item isn’t covered, and chances are that they will pay out to replace it. But a named peril policy probably wouldn’t list “accidentally planted my wedding ring when I was trimming my succulents and now it’s lost to the dirt forever” as a named peril, so you’d end up replacing the ring out of pocket.
Remember: it’s not the item in itself that you have to worry about covering. In most cases, your belongings are covered regardless of what they are, although your renters insurance policy will have exclusions for certain types of property as it does for certain types of risks. The difference between an all-risk or named perils policy hinges only on how the loss occurred.
Curious to learn more about how your policy determines coverage for your belongings? Check out our guide to understanding your renters insurance policy here.