What is a potential drawback of named peril insurance?

Named peril insurance is designed to provide coverage only for specific risks that are explicitly listed in the policy. This means that if a peril is not included in the list, any damages caused by that peril will not be covered. This limitation can be a significant drawback for policyholders because they may face substantial losses from dangers that are not addressed in their policy.

For instance, if a homeowner has named peril insurance that includes fire and theft, but their home suffers damage from a flood, they would not receive any compensation for those losses. This restricted coverage contrasts with all-risk or open peril policies, which cover all risks except those specifically excluded. Thus, the nature of named peril insurance inherently limits the protection available to policyholders, making it crucial for them to carefully review and understand the specified perils in their policy.