Property and Casualty Insurance Practice Exam

Which type of policy covers all risks of physical loss?

1. Named perils

2. General liability

3. Open peril/all risk

4. Limited perils

The correct answer is: Open peril/all risk

The open peril or all-risk policy is designed to cover a wide range of risks associated with physical loss, providing broader protection compared to named perils policies. With an open peril policy, coverage is provided for all causes of loss unless they are specifically excluded in the policy. This means that most unforeseen events that result in physical damage to property are covered, making these policies particularly valuable for policyholders who want extensive coverage without the need to worry about whether a specific peril is named in the policy. On the other hand, named perils policies list specific risks that are covered, meaning any risk not listed would not be covered. General liability policies primarily cover third-party risks, such as bodily injury and property damage for which the insured could be found liable, rather than physical loss of property. Limited perils policies restrict coverage even further, only protecting against a narrow set of risks. Thus, the open peril/all-risk policy stands out as the most comprehensive option for covering all risks of physical loss.