What Is an All Peril Deductible and How Does It Work?

An all peril deductible represents the initial financial responsibility a policyholder assumes before their insurance coverage begins to pay for a covered loss. This deductible is a fundamental aspect of many property insurance policies.

Understanding “All Peril” Coverage

“All peril” coverage, often referred to as “open peril” or “all-risk” coverage, offers broad protection against various causes of loss to insured property. This type of policy covers any risk of loss unless it is specifically excluded within the policy’s terms. Typical perils covered under such policies include damage from fire, theft, windstorm, vandalism, sudden and accidental water damage from burst pipes, and falling objects.

This approach differs significantly from “named peril” coverage, which only provides protection against a list of explicitly stated events. Under an all peril policy, the burden of proof generally rests with the insurance company to demonstrate that a loss is not covered because it falls under an exclusion. Conversely, with named peril policies, the policyholder must prove the damage resulted from a listed peril.

While comprehensive, all peril policies do contain specific exclusions. Common exclusions include damage from floods, earthquakes, war, nuclear hazards, wear and tear, intentional damage, neglect, government action, and certain water damage like sewer backups. Homeowners may need to purchase separate policies or endorsements for coverage against these excluded events.

The Deductible Mechanism

A deductible in an insurance policy is the amount of money the policyholder must pay out-of-pocket towards a covered loss before the insurance company contributes to the claim. Deductibles share financial risk between the insurer and policyholder, and help reduce small claims, managing administrative costs.

Deductibles are a standard feature in many insurance products, including property and auto policies. Policyholders choose their deductible amount when purchasing coverage, which impacts premium costs. A higher deductible typically results in a lower premium, as the policyholder assumes greater initial financial responsibility. Conversely, a lower deductible leads to higher premium payments.

Deductibles can be structured in various ways, with the most common being flat dollar amounts or percentage-based amounts. Flat deductibles are fixed sums, such as $500, $1,000, or $2,500, which are subtracted from the claim payment. Percentage-based deductibles, often seen in homeowner policies for specific perils like wind or hurricanes, are calculated as a percentage of the home’s insured value, commonly ranging from 1% to 10%.

Applying the All Peril Deductible

When a covered loss occurs under an all peril insurance policy, the policyholder is responsible for paying their all peril deductible first. This payment is typically made to the contractor performing the repairs, rather than directly to the insurance company. For instance, if a home sustains $10,000 in damage from a covered fire and the policy has a $1,000 all peril deductible, the policyholder would pay the initial $1,000, and the insurer would then cover the remaining $9,000, up to the policy’s limits.

A single deductible usually applies per covered event, even if multiple types of damage result from the same incident. For example, if a severe windstorm causes both roof damage and broken windows, only one all peril deductible would apply to the total covered loss. However, some policies may include separate, specific deductibles for certain perils, such as hurricane or wind/hail damage, particularly in high-risk areas. In such cases, these specific deductibles would apply instead of the general all peril deductible.

Policyholders should review their specific insurance policy documents. The declarations page outlines deductible amounts and special conditions. Understanding these terms helps policyholders anticipate financial responsibility and make informed decisions.