Washington State Insurance Practice Exam

What does "named peril" coverage refer to in insurance?

1. Coverage for all risks except those listed

2. Coverage for any risks that may arise

3. Insurance that covers only specific risks that are explicitly listed in the policy

4. Coverage that is defined by state regulations

The correct answer is: Insurance that covers only specific risks that are explicitly listed in the policy

"Named peril" coverage specifically refers to insurance policies that provide coverage only for the risks or perils that are explicitly outlined in the policy itself. This means that if a peril is not listed, such as theft, fire, or specific natural disasters, any loss or damage resulting from that unlisted peril would not be covered. This type of insurance is typically contrasted with "all-risk" or "open peril" policies, which offer coverage for all risks except those specifically excluded. The clarity of "named peril" is crucial for policyholders as they need to thoroughly understand what is covered and what is not, enabling them to assess whether the coverage aligns with their needs. Having a policy that delineates exactly what is included helps prevent misunderstandings or assumption of coverage that might not exist. In contrast, other options such as coverage for all risks except those listed, or coverage that involves any risks that may arise, do not accurately describe named peril coverage.