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Updated on October 4, 2023

The purpose of insurance is to address all the risks to life or property and provide coverage as per the insurance policy. The term peril is defined in the policy which is an essential part of determining the coverage claim. The meaning of this term and related details are given here.

Meaning of peril

The term “peril” is of significant importance as it forms the basis for determining what risks an insurance policy covers. A peril, in essence, is a specific event or circumstance that can lead to financial loss or damage to property. These perils are the core reasons individuals and businesses seek insurance protection, as insurance policies are designed to provide coverage against the financial consequences of these perils.

What are the types of perils?

Natural Perils – These encompass events stemming from natural forces such as earthquakes, floods, cyclones, landslides, and wildfires, typically covered by insurance policies like property insurance and natural disaster insurance.

Man-Made Perils – This category includes events or actions caused by human activities like accidents, theft, vandalism, riots, and acts of terrorism, and is typically covered by insurance policies such as auto insurance, home insurance, and business insurance.

Financial Perils – Some perils are financial in nature and may not involve physical damage, such as the loss of income due to illness or disability (covered by health and disability insurance) and liability for causing harm to others (covered by liability insurance).

Further Understanding Perils in Insurance Contract

Role of Perils in Insurance –

Understanding perils is vital when choosing an insurance policy because policies are tailored to provide protection against particular perils or a combination of them. When you buy an insurance policy, you are essentially entering a contractual agreement with the insurance company. This contract clearly defines which perils are covered and the terms for compensation in case of a claim.

Exclusions and Limitations –

It’s crucial to thoroughly examine policy documents to comprehend any exclusions or limitations pertaining to specific perils. Not all policies offer coverage for every peril, and certain policies may have restrictions based on factors like geographical location or circumstances. For instance, a standard homeowners’ insurance policy might not include coverage for damage caused by flooding, necessitating the purchase of separate flood insurance for those residing in flood-prone areas.