An uninsurable peril is a bad event or situation your insurance policy won’t cover if it results in damages or losses to your stuff (aka personal property).
Uninsurable perils, explained
Going back to the basics, a ‘peril’ is insurance speak for ‘danger,’ or a ‘bad thing’ that could happen to your place or stuff.
So an ‘uninsurable peril’ is a danger that can’t be insured.
If you have a renters or homeowners insurance policy, there are quite a few things that aren’t covered under your policy. In other words, there are quite a few uninsurable perils.
Here are a few examples of some typical uninsurable perils:
- Ongoing leaks
- Insects and rodent infestations
- Melting or moving snow and ice
Why aren’t these covered, you ask?
Well, for a few reasons. We’ll expand on this in the following sections.
What's the logic behind uninsurable perils?
Usually, these dangers, or uninsurable perils, have a high chance of happening, which would pose too big of a risk for your insurance company (or would make your insurance policy super expensive). These types of perils also tend to be catastrophic in nature, which your basic renters or homeowners insurance policy simply isn’t designed for.
Note: While these types of perils aren’t covered under your standard policy, it’s possible to get coverage for some of them elsewhere.
For example, you can purchase earthquake insurance through an earthquake insurance company, or get separate flood insurance (which includes mudflow) though your insurer. You can also add on extra coverage for uninsured perils like windstorms through something called an endorsement.
That said, there are a few uninsurable perils that you won’t be able to get coverage for anywhere.
That’s typically because it’s super difficult, even impossible, for insurance companies to calculate the risk of these happening. These include the following risk types: reputational, regulatory, trade secrets, political, and pandemic.
As you can see, all of these are ‘intangible’ risks, meaning your insurer won’t be able to price them properly or provide coverage for them.
Uninsurable perils vs. named perils (and open perils)
In your renters and homeowners insurance policy, there are three types of perils:
- Uninsurable perils – general things your policy won’t ever cover
- Named perils – specific things your policy will cover
- Open perils – your policy will cover everything except for these specific things
To review, uninsurable perils are things that aren’t covered under your insurance policy. But, if you’re curious about uninsurable perils, you’ll probably need to know what named perils are too.
‘Named perils’ are the things that are covered under your insurance policy.
So if you have renters or homeowners insurance, these include things like fire, theft, windstorm, etc. If these types of things cause damage to you or your stuff, renters insurance can reimburse you for the damage (minus your deductible, of course).
Open perils, usually found in homeowners policies under dwelling coverage (the type of coverage working to protect your house), covers all types of dangers, except for what’s specifically excluded. If it’s not excluded, you’re covered.
An example of an uninsurable peril
Let’s say you move into a brand new apartment – yay! It’s absolutely perfect, but the only caveat is that it’s on the ground floor. You’ve heard from your neighbors that when it rains, the apartment has a high risk of flooding. So naturally, you decide to get a renters insurance policy.
After filling in your details on the renters insurance form (or, in some cases, on an app), you see that renters insurance actually doesn’t cover floods. That’s because floods from the outside-in are super common, and would probably cause damage to a bunch of your stuff, making it too high of a risk for your renters insurance company (or too expensive of a policy for you).
But no fear – you can still get flood insurance separately from your renters insurance carrier, as long as it’s a part of a national government program.