What is a "named perils" policy in the context of homeowners insurance?

A "named perils" policy is one that specifically lists the risks or perils that are covered. This means that the policyholder is protected only against the events explicitly mentioned in the policy document. If a peril is not named, it is not covered, which allows for a more targeted approach to insurance. Named perils policies are often more affordable than other types of coverage because they limit the scope of protection.

For instance, a typical named perils policy might include coverage for perils such as fire, theft, and vandalism, but if damage occurs due to a non-listed event like an earthquake or flood, the policyholder would not be compensated for those losses.

In contrast, a policy that covers all potential risks (often referred to as "open perils" or "all risks") would provide broader coverage yet come at a higher premium due to the increased level of risk assumed by the insurer. Other options that include policies that are renewable annually or those with higher premiums for broader coverage don’t accurately reflect the specific framework of a named perils policy.