When it comes to reading a homeowners' insurance policy, it's completely understandable that you may feel intimidated by searching through the various sections, particularly when the industry seems to have a vocabulary of its own. And yet it's crucial that you read and fully understand what you're signing up for to be convinced you have the coverage you require. The secret to this is simply learning the language that makes up your policy.
Three terms, in particular, can occasionally confuse policyholders: Risks, perils, and hazards. That's because, at first glance, they're extremely similar to each other, and we might even use them interchangeably in our daily speech. But in the realm of insurance, each word has a specific definition.
Below, our public claims adjuster in Orlando, FL, defines risk, peril, and hazard in the context of insurance and offers examples of each so that you're better equipped to make an educated decision when shopping for your policy.
In insurance, the word risk refers to the prospect of a loss. Insurance companies evaluate a variety of factors to determine the amount of risk involved in administering a policy. Risk factors are employed to decide insurance rates, and they directly impact your premiums. Generally speaking, the more significant the risk that exists, the more elevated your premiums may be.
A peril is the immediate cause of a loss or the origin of the loss. For instance, if a lightning strike harms your home, the lightning strike is considered to be a peril. If your home catches on fire, then the fire will presumably be considered a peril. The list goes on. In other words, perils are basically what you are insuring your house, automobiles, or property from. Some homeowners' insurance policies only insure against perils named explicitly in the policy (called named perils). Other policies provide broad coverage against all perils but those expressly excluded (called exclusions).
A hazard is something that either directly leads to a loss or anything that improves the likelihood of a loss. For instance, if your house has a swimming pool, it could be deemed a hazard because it raises the likelihood that somebody might be injured on the property.
Because the existence of certain hazards improves the likelihood of a loss, insurance companies ask complex questions about your house before agreeing to furnish coverage. When your house is inspected, and the inspector uncovers hazards, your rate will probably increase — or your carrier may decide to cancel your policy.
With all of this in mind, you can think of the connection between risk, peril, and hazard like this:
At first glance, it seems confusing, but once you really comprehend what the words mean, it all begins to make a lot more sense.
Purchasing homeowners insurance doesn't have to be complicated. By learning the terminology behind your policy, you'll be in a more suitable position to honestly assess your coverage alternatives and locate the policy that best suits your needs.
We hope this helps you understand risks, perils, and hazards. Call us today if you need a public claims adjuster in Orlando, FL.