Types of perils covered in insurance policies
The most important distinction among perils in insurance policies is between “named perils” and “open peril” insurance plans.
Named perils only cover risks explicitly listed in the policy.
Open perils (sometimes called all-risk) provide broader coverage and include all risks except those explicitly excluded.
That being said, many small business insurance usually name the following events as perils:
- Fire and smoke damage: Damage caused by fires, including physical property destruction and smoke-related effects.
- Theft and vandalism: Losses from crimes such as break-ins, theft, or deliberate damage to business property.
- Water damage: Damages from issues like burst pipes. Flood is not included here, but covered separately.
- Weather-related damages: Covers natural events like windstorms, hail, or lightning. Additional coverage may be needed for severe weather events.
- Business interruption: Protects against income loss due to events like fires or major storms disrupting normal business operations.
- Liability risks: Covers incidents where a third party (e.g., a customer) suffers injury or property damage related to the business, for which the business may be legally responsible.
What perils are usually excluded from small business insurance?
Some events are difficult to insure due to their unpredictable nature, or because covering them would be against public policy. Some of these include:
- Floods: Usually excluded because of their potentially catastrophic nature and the widespread damage. Often requires a separate policy.
- Earthquakes: The extensive damage usually requires additional coverage.
- Acts of war or terrorism: Generally excluded due to their extreme levels of destruction.
- Nuclear hazards: The immense and long-lasting damage makes these a peril that is usually excluded from standard policies.
- Intentional acts by the policyholder: Insurance policies do not cover losses that result from intentional acts or criminal behavior by the policyholder.
How to mitigate risks of perils
A thorough risk assessment helps identify potential risks for your business, ensuring accurate insurance coverage and preventing underinsuring your business or coverage gaps.
As a small business owner, you can take some practical steps to reduce risks from events like fires or natural disasters. Here’s how:
Fire prevention:
- Install smoke detectors, fire extinguishers and sprinkler systems.
- Maintain and inspect electrical equipment to prevent electrical fires.
- Store flammable products carefully and keep the workplace clutter-free.
Natural disaster preparedness:
- Raise flood barriers or move essential equipment to higher levels in flood-prone areas.
- Secure shelving and heavy equipment.
Emergency planning:
- Create an emergency plan with evacuation routes and contact information.
- Keep an emergency kit on hand.
- Plan for remote business operations if necessary.
Data backup and insurance:
- Back up data and important documents off-site or in the cloud.
- Regularly review and update insurance coverage to ensure effective protection.
Protecting your business with NEXT Insurance
At NEXT, we have your back. We’re 100% committed to small business owners and are driven to ensure you have the ideal business insurance tailored to your unique requirements.
You can get your customized quote in about 10 minutes by simply answering a few questions online. After securing your coverage, you can access your certificate of insurance whenever you need it.
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The information provided on this page is meant for informational purposes only, is general in nature, and is not intended to and should not be relied upon or construed as a legal opinion or legal advice regarding any specific issue or factual circumstance.
