What is a common limitation found in named peril insurance?

Named peril insurance is characterized by its focus on covering only those specific risks that are explicitly listed in the policy. This means that if a loss occurs due to a peril that is not mentioned in the named perils, it will not be covered. This limitation is crucial for policyholders to understand, as it places the onus on them to ensure that their policy adequately lists all relevant risks they may face.

Unlike all-risk (or open perils) insurance, which covers a broader array of potential losses unless specifically excluded, named peril insurance requires a detailed review of the policy to ensure proper coverage. This specificity can lead to gaps in protection for events that the insured may expect to be covered but are not explicitly named. Thus, policyholders need to be diligent in recognizing the scope of their coverage and might need to reconsider their insurance needs based on the named perils outlined in their policy.

The misunderstanding of this limitation can lead to unexpected financial exposure in the event of a loss, emphasizing the importance of clearly understanding what is and isn't included in named peril coverage.