Definition — what “all risks” (open perils) means
– “All risks” insurance—also called open-perils or comprehensive coverage—is a property policy that insures against any cause of loss or damage except those causes the contract expressly excludes. In other words, the policy lists what is not covered rather than listing every covered event.
Key difference vs named perils
– Named perils: the insurer only promises to pay for losses caused by events specifically listed (for example: fire, lightning, vandalism). If a cause of loss is not listed, no coverage for that event.
– All risks: the insurer covers all causes of physical loss or damage unless the policy language expressly excludes that cause (for example: earthquakes, war, wear and tear are commonly excluded).
Burden of proof (who must show what)
– For all risks policies: the insured generally must first demonstrate that a covered physical loss or damage occurred. Once the insured shows a physical loss, the burden shifts to the insurer to prove that an exclusion applies. This is different from many named-perils contracts, where the insured must show the loss was caused by a named peril.
Common exclusions and supplements
– Typical exclusions on all-risks policies include earthquakes, floods, war, pollution, nuclear events, gradual deterioration or normal wear and tear, and government seizure.
– Insureds can often buy additional coverage for excluded perils via riders, endorsements, or separate policies (flood and earthquake insurance are common separate policies).
Four major personal insurance categories (most households)
– Life insurance, auto insurance, health insurance, and long-term disability insurance are the most common protections individuals carry. Property like homes, jewelry, and collectibles may require separate property policies or endorsements.
Practical checklist — reading an all-risks (open-perils) policy
1. Locate the exclusions section. Read every exclusion and any definitions that modify exclusions.
2. Confirm whether coverage applies to building, contents, or both. Some policies give all-risks for structures and named-perils for personal property.
3. Check deductibles, sub-limits, and specialty limits (e.g., jewelry, business equipment).
4. Look for required proof of loss: what documentation and timing does the insurer demand?
5. Identify endorsements/riders to add excluded perils (earthquake, flood, backup of sewer). Compare costs.
6. Confirm replacement-cost vs actual-cash-value settlement methods.
7. Note any obligations after a loss (mitigation, reporting, cooperating with investigations).
8. Ask your agent: how does the insurer interpret “physical loss” vs “loss of use” or business-interruption claims?
Step-by-step: how to evaluate whether to buy all-risks or named-perils
1. Inventory your exposure: list items and values (building, contents, business property).
2. Compare policy language side-by-side for exclusions and limits.
3. Request premium quotes for both coverages and for any needed riders.
4. Estimate expected annual loss value (probability × average loss) for perils covered only by all-risks.
5. Compare the incremental premium to the expected protection value and your risk tolerance.
6. Check insurer ratings, claim handling record, and specific wording (endorsements can change coverage materially).
7. Decide and document the choice; update inventories and endorsements as values change.
Worked numeric example (hypothetical)
– Situation: homeowner insures personal contents worth $60,000.
– Quote A (named perils): annual premium $600; typical named coverages exclude accidental water damage from appliance failure.
– Quote B (all risks): annual premium $900; includes accidental damage unless excluded.
– Suppose the homeowner estimates a 1% annual chance (0.01) of a $8,000 accidental-damage claim that would only be covered by the all-risks policy. Expected annual loss avoided by buying all-risks = 0.01 × $8,000 = $80.
– Incremental cost for all-risks = $900 − $600 = $300.
– Comparison: $300 incremental premium vs $80 expected annual benefit. If those loss-probability and loss-size estimates are realistic for the homeowner, the extra premium may not be justified purely on expected-value grounds; other factors (risk aversion, catastrophic-loss potential, liquidity) could change the decision.
Notes and practical assumptions
– The example assumes a constant probability and average claim size and ignores insurer-specific deductibles, sub-limits, and policy wording. Real underwriting and historical claim rates vary by location and asset type.
– “Physical loss” usually means actual, tangible damage to property; loss of use, loss of income, or business interruption typically require specific coverage.
When all-risks is more attractive
– You have high-value, unusual, or hard-to-replace items.
– You want broad protection and are willing to pay extra for it.
– You face many uncertain, hard-to-enumerate exposures where explicitly listing every peril is unrealistic.
When named perils may be preferable
– You want cheaper basic protection and can accept gaps for certain low-probability events.
– You can obtain separate, lower-cost coverage for specific exclusions (for example, a separate flood policy where needed).
Bottom line
– “All risks” does not mean “everything.” It is the broadest standard property coverage because it covers any cause of physical loss unless the policy expressly excludes it. The key tasks for any buyer are to find and understand the exclusions, confirm which parts of their property are covered on an open-perils basis, and weigh the incremental premium against the realistic likelihood and cost of excluded losses.
Reputable references
– Investopedia — All Risks: definition and overview: https://www.investopedia.com/terms/a/all-risks.asp
– Insurance Information Institute (III) — Types of homeowners insurance and perils: https://www.iii.org/article/what-homeowners-insurance-covers
– National Association of Insurance Commissioners (NAIC) — Homeowners insurance basics: https://content.naic.org/consumer_homeowners.htm
– FEMA — Flood insurance basics (flood is commonly excluded from property policies): https://www.fema.gov/flood-insurance
Educational disclaimer
This explainer is for general education only and is not personalized insurance, legal, or financial advice. Policy language, prices, and regulatory rules differ by insurer and jurisdiction. Consult a licensed insurance agent, broker, or attorney before making coverage decisions.