What Is All Risks?
"All risks" is a type of insurance coverage that automatically covers any risk that the contract does not explicitly omit. For example, if an "all risk" homeowner's policy does not expressly exclude flood coverage, then the house will be covered in the event of flood damage.
This type of policy is found only in the property-casualty market.
- All risks is a comprehensive insurance policy offered in the property-casualty market.
- All risks and named perils are two types of insurance commonly offered to homeowners and business owners.
- Insurance that allows for all risks means the policyholder can seek compensation for any events that the contract hasn't directly ruled out as being covered.
- Policyholders can usually pay more to have a rider or floater added to the contract that would cover a specific event that was ruled out.
- All risks insurance differs from named perils insurance, in which the policyholder can only seek compensation for events that are specified in the policy.
Understanding All Risks
Insurance providers generally offer two types of property coverage for homeowners and businesses—named perils and "all risks." A named perils insurance contract only covers the perils stipulated explicitly in the policy. For example, an insurance contract might specify that any home loss caused by fire or vandalism will be covered. Therefore, an insured who experiences a loss or damage caused by a flood cannot file a claim to his or her insurance provider, as a flood is not named as a peril under the insurance coverage. Under a named perils policy, the burden of proof is on the insured.
An all-risks insurance contract covers the insured from all perils, except the ones specifically excluded from the list. Contrary to a named perils contract, an all-risks policy does not name the risks covered, but instead, names the risks not covered. In so doing, any peril not named in the policy is automatically covered. The most common types of perils excluded from "all risks" include: earthquake, war, government seizure or destruction, wear and tear, infestation, pollution, nuclear hazard, and market loss. An individual or business who requires coverage for any excluded event under "all risks" may have the option to pay an additional premium, known as a rider or floater, to have the peril included in the contract.
Burden of Proof
The trigger for coverage under an "all risks" policy is physical loss or damage to property. An insured must prove physical damage or loss has occurred before the burden of proof shifts to the insurer, who then has to prove that an exclusion applies to the coverage. For example, a small business that experienced a power outage may file a claim citing physical loss. The insurance company, on the other hand, might reject the claim stating that the company experienced a loss of income from a mere loss of property use, which is not the same thing as a physical loss of property.
Because "all risks" is the most comprehensive type of coverage available and protects the insured from a greater number of possible loss events, it is priced proportionately higher than other types of policies. The cost of this type of insurance should, therefore, be measured against the probability of a claim.
It is possible to have named perils and "all risks" in the same policy. For example, an insured may have a property insurance policy that has all-risks coverage on the building and named perils on his personal property. Everyone should read the fine print of any insurance agreement to ensure that they understand what is excluded in the policy. Also, just because an insurance policy is termed “all risks” does not mean that it covers "all risks" since the exclusions reduce the level of coverage that is offered. Make sure you look for the exclusions in any prospective policy.